Financial Advisors

Have You Succeeded or Failed So Far This Year Through October?

  • You may have succeeded by earning as little as 5%, or success could require a return above 18%. Success is relative.
  • Evaluating your performance depends on your investment horizon and your risk preference.
  • Target date funds provide a good barometer of your success or failure

Are you happy with your investment performance? Why? The answer to the question “Is performance good?” requires an answer to another question: “Relative to what?” In this article we provide performance benchmarks tied to your investment horizon and your risk preference. If your horizon is long, traditional wisdom says you can afford to take substantial risk, but you’re certainly not obligated to take a lot of risk, so for each of 5 investment horizons we provide two choices-- low and high risk -- using the live results for target date funds (TDFs).

Most investors own a diversified portfolio consisting of several asset classes, so you’d like to know how similar multi-asset portfolios have performed and why you’ve succeeded or failed relative to your TDF benchmark.

Target date funds make good benchmarks for evaluating your performance because they are well diversified and vary by horizon/age, being more aggressive for young people and more defensive for older people.

There are two choices of TDF benchmarks: conservative and aggressive. If you’re not sure which you are, you can use this self assessment guide.

Here’s how TDFs have performed so far this year, and why. We provide a Conservative benchmark that uses the patented Safe Landing Glide Path (SLGP) and an Aggressive benchmark that is followed by the TDF Industry. The results are live. The SLGP is used by the SMART target date fund index collective investment trust, and the “Industry” is essentially the Vanguard TDF mutual fund, since Vanguard manages more than half of all TDF assets.

Evaluating Your Performance for the 10 Months Ending October, 2019

It’s been a good year so far through October, 2019. You should have earned a double digit return, unless you have a short investment horizon and you’re a Conservative investor. In the graph below, locate your horizon, as represented by a target date. Then choose the return associated with your risk – Aggressive or Conservative. Is your return above or below this benchmark? To understand why you’re winning or losing, see the next section below on Asset Class Performance.

Jan-Oct, 2019 TDF Returns

Source: Glidepath Wealth Management

You may have succeeded by earning more than 4.38%, or success could require a return above 18.14%, depending on your horizon and risk preference.  Long horizon 2050 Aggressive funds have earned 18.14%, capturing much of the US stock market’s 23% rise. As for the shortest horizon investments, the Today Aggressive funds have earned 11.97%. By contrast, the Conservative benchmark has lagged the Aggressive for all horizons. Aggressiveness has won this year so far. 

But Aggressive doesn’t always win. The Conservative glidepath has a history of success in the face of challenge. All horizons were the best performing in 2008, 2011 and 2018, and Conservative has won by not losing over the history of TDFs.

As shown in the following “Mountain Chart”, the Conservative path is much more defensive for short horizons and much more diversified at long horizons. Also (not shown) the Conservative path lowered its bond maturities in 2014 because the risks do not justify the rewards.

SLGP/SMART vs. Industry/Vanguard

The next section provides details to determine why you’re winning or losing. If you’ve allocated to better performing asset classes, you should be winning.  But if you’ve concentrated in poorly performing assets, your performance will likely lag. Learning why your performance is good or bad is a good way to start refinements to your asset allocation.

Asset Class Performance

Every asset class has earned positive returns this year so far. The word “bubble” appears every day in numerous articles. US stocks are continuing their unprecedented run. Real estate has surged this year. US interest rates threaten to plunge below zero. At the same time, there may still be bargains in segments that are lagging this year like commodities. What is your outlook for momentum and reversals?

Asset class returns for Jan - Oct

Conclusion

Have you succeeded or failed so far this year? What changes will you be making for the rest of the year?

Despite the current good fortune, or perhaps because of it, market observers see a recession on the horizon, largely because the current recovery is the longest on record, it’s global, and it’s running out of steam. Also, there is a World Debt Crisis that will not end well. Are you concerned? If so, you may want to move to safety. But what is safe, and what if your portfolio is already as safe as it should be? To answer these questions, please take our risk assessment quiz.

Want to Know More?

GlidePath Wealth Management provides investment management services to a select group of private clients.  We provide access to patented investment strategies and techniques used by the largest and most sophisticated institutional investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Ron Surz

Ronald J. Surz is Chief investment Officer of Glidepath Wealth Management and President of Target Date Solutions (TDS). GlidePath manages Personalized Target Date Portfolios for individual investors, primarily in IRAs. TDS manages commingled Target Date Funds for 401(k) plans. An industry veteran, Ron started his consulting career with A.G. Becker in the 1970s and formed his own consulting firms in the 1990s. With Masters degrees in Applied Mathematics and Finance, Ron publishes regularly and has developed leading edge technologies like the patented Safe Landing Glide Path® tracked by the SMART Funds® Target Date Index.

Read Ron's Bio