Q&A: What Portfolio Would Outperform the S&P 500 Over the Past Ten Years?

What Portfolio would outperform SP500 in the past 10 years? My wife has about $120K to invest in her IRA account. We’ve looked at various portfolios out there to either use or model after, but we’ve been disappointed to find that nearly all of them underperform the SP500. And when the market crashed in 2008, all the portfolios also crashed. It nearly seems like the portfolios are merely an underperforming version of the SP500? Can someone explain or point to portfolios that either performed better than SP500 or made it through much better during the crash of 2008?

Despite ubiquitous warnings that “past performance does not guarantee future results,” questions like yours are very common. It’s part of being human. We have an instinctive tendency to judge recent events as more valid than older events. This is known as “recency bias” and has been tripping up investors throughout history.

Finding a portfolio or strategy that would have beaten the market over the last ten years is pretty easy – off the top of my head, any combination of gold and emerging markets would have worked. They both outperformed the S&P 500 over the last decade pretty handily. Of course, this is information that would have been very useful to know ten years ago.

If you are looking at investing a lump sum today, it’s the next ten years you have to be concerned with and hindsight isn’t much help here. Rather than trying to predict an unknowable future, let’s focus on a couple of priorities that are achievable:

  1. Performing better through a market crash or long period of futility is the product of a well thought out risk management plan. This goes beyond the mix of asset classes, if protection from downside risk is important to you, consider the likelihood of a correlated decline across many asset classes. Investors that wouldn’t think of driving a $30,000 car without insurance routinely invest many multiples of that amount in risky, unpredictable markets without a plan for protecting themselves from the risk of catastrophic loss. There are a lot of ways to approach this – we can help you explore your options or manage it for you.
  2. Try to train yourself to stop judging performance on a relative basis. Beating or lagging the market is ultimately a meaningless bit of trivia. If your account only declines by 20% while the market drops 25%, that’s not a victory. If the market rises 25% but your account only rises by 20%, that’s not a failure. Try to remember the purpose of your investment. Most people don’t do it for the pleasure of owning financial assets, they invest to earn a positive return on their capital. Stocks are just a means to that end. They are a tool, one of many you have available. Keep your focus on the job, not the tools.

If you have a question about investing, the markets or managing a portfolio, please submit it in the form below or call us at (800)270-4551.

Disclaimer: Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors. Talk to your financial advisor before making any investing decisions. Past performance is not indicative of future returns. Information displayed is taken from sources believed to be reliable but cannot be guaranteed. When you link to any of the websites provided here, you are leaving this website. We make no representation as to the completeness or accuracy of information provided at these websites. All indices are unmanaged and investors cannot invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Ideas and opinions expressed in this article are the sole responsibility of Patrick Crook/PLC Asset Management and do not reflect any stated opinions of Commonwealth Financial Network, National Financial Services LLC or any other person or entity.

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About Patrick Crook

Pat Crook is a financial advisor in Corvallis, Oregon with over twenty years of experience. He has developed a specialized form of investment portfolio management designed to address the risk concerns of those in or near retirement as well as organizations like charitable endowments and foundations. To learn more or set an appointment, he can be reached at 541.753.1808.