Should You Try To Match Or Beat The S&P 500?


Many investors feel the need to match or exceed the S&P in the good years.  If they don’t, they consider themselves or their money managers a failure.  At the same time, when the market takes a major hit, nobody wants to match the S&P.  Go figure.

One investment principle I believe in is the need for diversification, as this will limit the risk of horrific losses in an uncertain world.

Think about this… if 30 years ago I gazed into my useless crystal ball (Amazon, $22 and still cloudy) and told you that the Soviet Union would collapse, Japan’s stock market would stagnate for a quarter century, China would become a superpower and North Dakota would help turn the U.S. into a fast-growing source of crude oil, few would have believed it.

It’s always easier predicting the past using Mr. Peabody’s “wayback machine” as featured on the Rocky and Bullwinkle Show.  Predicting the future is a lot trickier.

What about the next 30 years?  Will they be just as surprising?

Diversification among different asset classes can be frustrating.  It requires, at every point in time, owning some unpopular assets.

You might ask yourself why you’d want to own European stocks if its economy is such a mess and Greece could fold any day.  Maybe you’ll ask yourself why you should buy bonds when interest rates are so low.

A good answer might be because the future could play out in ways neither you nor I could possibly comprehend.  Maybe we can just say that owning a little bit of everything is a bet on our fallibility, which the history of investing shows is a valuable trait.

Enough of all this.  Let’s hope the market has a strong 10 days as we close out the first half of 2015.

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