The world’s stock markets didn’t reward investors well this quarter. Representative of first-quarter results was the -0.8 percent total return of the Wilshire 5000. Broad-based global stock indexes did a hair better, while U.S. Bond returns were worse.
We illustrate how these results affected investors by reviewing four representative investors’ portfolios of $100,000.
The relevant data for the period January 1, 2018, to March 31, 2018, are: Wilshire 5000 returned -0.8 percent; Nasdaq composite returned 2.3 percent; intermediate-term Treasury securities returned -1.3 percent.
Alan is our aggressive speculator. He believes he’s young enough to recover from losses so his money belongs in stocks that may give him the largest gains — aggressive Nasdaq stocks. To approximate his portfolio’s performance, we use the Nasdaq. The preceding data show that his $100,000 portfolio has increased to $102,300.
Betty is more cautious but still an aggressive investor. She believes that stocks are her best alternative but is not comfortable with “speculative” stocks. Her all-stock portfolio aims for broad market diversification. Using the Wilshire 5000 to approximate her results shows that her $100,000 portfolio is now worth $99,200.
Carl is our moderate investor, someone who wants broad stock exposure but wants some bonds to reduce his risk and generate some cash to dampen volatility. His portfolio of 60 percent diversified stocks and 40 percent intermediate-term Treasury securities now is worth $99,000.
Dorothy is our moderately conservative investor. She knows that, in the long-term, stocks will almost certainly outperform bonds. But she is concerned that stocks might be depressed when she needs to cover some expenses. Her portfolio of 40 percent diversified stocks and 60 percent intermediate-term Treasury securities is now worth $98,900.
For context, we look at the performance of my 2018 “Moderate Investor’s Asset Allocation,” which is made up of:
• Twenty percent total U.S. stock market index fund (VTI).
• Ten percent small-capitalization value fund (VBR).
• Twenty percent diversified international stock fund (VEU).
• Ten percent small-capitalization international fund (VSS).
• Five percent real estate investment trusts (VNQ).
• Fifteen percent large and mid-capitalization common stocks with a history of paying competitive and increasing dividends (VIG).
• Fifteen percent diversified portfolio of intermediate-term corporate bonds (VCIT).
• Five percent cash equivalents.
Data from Vanguard shows its value decreased by 1.2 percent to $98,800.
This well-diversified portfolio lagged the Wilshire 5000 because of its allocation to poorer performing interest-rate-sensitive securities like REITs and bonds. On an annual basis, this portfolio has generally been at least competitive with the Wilshire 5000 while having lower volatility.
Send comments and questions to Robert Stepleman, Dow Wealth Management, 8205 Nature’s Way, Lakewood Ranch, FL 34202, or firstname.lastname@example.org. Follow him on Twitter @logicalinvestor. Stepleman is associated with Dow Wealth Management LLC as a lecturer and chief portfolio strategist. He offers advisory services through Bolton Global Asset Management, an SEC-registered investment adviser. Past performance is not indicative of future results. The data and performance information is for informational purposes only and is not intended as a solicitation.