qandaQ:  I've noticed that my recent investment performance has been significantly lower than the recent performance of the S&P 500. Does it still make sense to stick with your recommended Vanguard Index Funds vs. the simple Vanguard S&P 500 Index?

 

 


Question: I have followed your investment recommendations for years and I’ve fared better than most during the 2009 downturn. However, I’ve noticed that my recent investment performance has been significantly lower than the recent performance of the S&P 500. Does it still make sense to stick with your recommended Vanguard Index Funds vs. the simple Vanguard S&P 500 Index?

Answer: Your question is a great one. How important is short term performance?  How do we know when historical trends have changed?  Should the recent out-performance of the S&P 500 be enough evidence to put all of your money in this fund?  I will do a podcast on the topic, but the bottom line isabsolutely not

What is happening is normal based on the past. For the 42 years ending 2011, the S&P 500 out-produced my suggested group of asset classes in 17 years, or about 40% of the years. The difference in return was 2.2 percent a year. In other words, a $10,000 investment in the S&P 500 turned into $507,339 (9.8%) vs. $1.167.231 (12%) for the diversified portfolio.  Stay tuned for my podcast!