- Foreign Stocks (IEFA): 22.46%
- Emerging Markets (IEMG): -2.77%
- Real Estate (IYR): 1.16%
- US Government Bonds (IEF): -6.09%
- US TIPS (TIP): -8.49%
- Corporate Bonds (LQD): -2.00%
- International Bonds (IGOV): -1.37%
- Emerging Market Bonds (LEMB): -6.73%
- Commodities (DJP): -11.12%
- Gold (GLD): -28.33%
Thursday, January 2, 2014
Learn the Right Lesson From 2013
2013 was viewed as a very positive year by investors. The S&P 500 index (measuring large cap U.S. stocks) was up 32.39% for the year. However, the reality is most other asset categories didn’t come close to keeping up with the pace set by U.S. equities. For instance:
Many will abandon their investment strategy because it didn’t give them the absolute best result last year, failing to recognize the long-term benefit of diversification. I’d argue that a better perspective is to remind yourself that the definition of diversification is that you always dislike a portion of your portfolio. Even in the most widely prosperous market environment, a truly diversified portfolio will have an element or two that lags the market. In fact, if at any time a portion of your portfolio isn’t generating negative returns, you should be concerned about a lack of diversification in your investment strategy.
Now is an ideal time to review your asset allocation and remind yourself why we diversify. Modifying your allocation with a focus on what happened in 2013 would be similar to guessing a coin flip will land on tails because it did on the previous flip. The correct lesson to take from 2013 is that over time, a well-diversified portfolio is capable of producing sufficient returns to help you reach your investment goals while minimizing risk.