{"id":5420,"date":"2017-03-21T17:22:05","date_gmt":"2017-03-21T21:22:05","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/?p=5420"},"modified":"2022-02-26T13:19:31","modified_gmt":"2022-02-26T13:19:31","slug":"401k-compare-market-performance","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/401k-compare-market-performance\/","title":{"rendered":"How Does Your 401(k) Compare to Market Performance?"},"content":{"rendered":"

Terry from New Orleans, LA asks: <\/em><\/strong>Last year was a really good year for the stock market, but my 401(k) didn\u2019t perform nearly as well. My portfolio is invested in a 60% mix of growth and value mutual funds and about 30% bond funds, with the rest of it in international mutual funds. The S&P 500 was up almost 10% but I was only up 4.5%. What gives?<\/p>\n

Mitch\u2019s Reply: <\/em><\/strong>\u00a0I realize how frustrating that may seem, Terry. We consistently talk about the long-term value of having a well-diversified portfolio, and in some years, it can feel like that means missing-out on big returns.<\/p>\n

But don\u2019t let that deter you from your long-term strategy. From the sounds of it, you have built a nicely diversified portfolio. I realize that in many 401(k) plans your investment options can be limited, and it sounds like you\u2019ve done a solid job of diversifying your money across asset class and region.<\/p>\n

There is a simple quantitative explanation for why your portfolio underperformed the S&P 500. Fixed income (bonds) underperformed relative to stocks in 2016, and U.S. stocks did better than foreign. The 40% of your portfolio allocated to fixed income and international almost certainly did not perform as well as the S&P 500, and the end result is that it weighed on your total return for the year. In this case, the increased diversification helped your risk profile but not your return profile.<\/p>\n

But, that should not worry you. By comparing your 401(k)\u2019s performance to the S&P 500, you\u2019re essentially comparing an apple to an orange. If you want to compare your 401(k)\u2019s performance to a benchmark, then that benchmark should be composed of 60% U.S. stocks, 30% fixed income, and 10% international. Your benchmark should probably be 60% S&P 500, 30% Barclays Aggregate Fixed Income, and 10% MSCI World ex-USA. If you outperformed or were in-line with the performance of that benchmark, then you\u2019ve made some good choices.<\/p>\n

So your next thought might be: should I switch to an all US-stock strategy in my 401(k)? <\/em><\/strong><\/p>\n

Without knowing more about you \u2013 your financial situation and your goals \u2013 I can\u2019t answer that. But, I can tell you that the diversified approach you currently have is not likely to lag each year. In a time when U.S. stocks perform very poorly (2008, for example), your portfolio has a good chance of outperforming given your fixed income allocation. In a year where foreign does better than the U.S., you might also see a slight bump. The key is to choose an asset allocation that best suits your investment objectives, and stick with it as a long-term strategy unless your objectives change. There will be some years where you outperform, and some where you underperform, but overall you can control risk and hopefully reduce some volatility along the way.<\/p>\n","protected":false},"excerpt":{"rendered":"

Terry from New Orleans, LA asks: Last year was a really good year for the stock market, but my 401(k) […]<\/p>\n","protected":false},"author":1,"featured_media":4257,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-5420","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/5420","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=5420"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/5420\/revisions"}],"predecessor-version":[{"id":11060,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/5420\/revisions\/11060"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=5420"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=5420"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=5420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}