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Why this is not a “Lost Decade”

We have lost track in the last year of the number of times we have heard commentators on TV, radio or in print make a statement that if you were in the S&P 500 you lost money in the last 10 years (-0.95%), hence a “lost decade”.  Though the statement is true that the S&P 500 lost money, the danger is to assume that you as the investor did the same, worse or that you will loose the same for the next decade.

The past decade has been one of the most challenging on record for investors.   We experienced two recessions, which hasn’t happened since the 1930s.  The real question is “During this volatile period, how have well run equity mutual fund managers done?”

The below chart illustrates how a balanced portfolio brought back a 59.9% cumulative return in 10 years compared to 9.1% for the S&P 500.  While past returns are not predictive of future results, they powerfully illustrate how “good money managers” and a well diversified portfolio help investors achieve their long-term goals.   We continue to belief the key elements to successful investing include:  1) Diversifying in the appropriate mix of stocks and bonds based upon your risk tolerance  2) Optimizing your portfolio with an appropriate mix of different asset classes.  3) Hiring quality managers that have consistently beat their benchmarks  4) Regularly monitoring and rebalancing your portfolio when appropriate.

Source:  Russell, MSCI Inc., Dow Jones, Standard and Poor’s Barclays Capital, NCREIF, J.P. Morgan Asset Management.  The “balanced” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index, and 5% in the NAREIT Equity REIT Index.  Balanced portfolio assumes annual rebalancing.  All data except commodities represent total return for stated period.  Past performance is not indicative of future returns.  Data are as of 12/31/09, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 11/30/09.  “10 Year” returns represent cumulative total return and are not annualized.  Index Definition: S&P500 (500 large-cap common stocks actively traded in the United States), Russell 2000 (small cap index), MSCI EAFE (Europe, Australia, Farr East index), Barclays Capital Aggregate (investment grade bonds index), CS/Tremont Equity Market Neutral (hedge fund index), DJ UBS Commodity Index (commodities index) , NAREIT Equity REIT Index (real estate investment trust index).  You cannot invest directly in any index.  Individual results will vary.

Source AD #C10-03249.  An excerpt from our 4th Quarter 2009 newsletter.  Written by Marvin T. Ellis, Jr, Financial Consultant.

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This entry was posted on Tuesday, February 23rd, 2010 at 8:26 am and is filed under Consumer Alerts. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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