Newspaper article Sarasota Herald Tribune

First-Half Returns Worthy

Newspaper article Sarasota Herald Tribune

First-Half Returns Worthy

Article excerpt

of only half-hearted cheers

INVESTORS' FIRST HALF 2012 U.S. stock market results likely were met with only restrained cheering. The markets, while doing well, lost ground from their outstanding first quarter.

Representative of U.S. results was the 8.4 percent return of the Dow Jones U.S. Total Market Index. Broad-based global indexes badly lagged U.S. returns. These resulted in U.S. Diversified Equity mutual funds significantly outperforming World Equity funds. U.S. Bond investors' returns picked up from the first quarter; however, they generally were only about a third of equity returns.

We next illustrate how these results affected investors by reviewing how four representative investors' portfolios of $100,000 performed. These portfolios are roughly representative of many investors' portfolios because they span the spectrum from aggressive to conservative.

The relevant data for the period January 1, 2012 to June 30, 2012 is: The Dow Jones U.S. Total Market Index returned 8.4 percent; the Nasdaq Composite returned 12.7 percent; Intermediate Treasury Securities returned 2.7 percent.

We use these to value each portfolio.

Alan is our aggressive speculator. He believes that since he is young and has time to recover from any losses, his money belongs in stocks, and the ones that can give him the largest gains. Alan invested his all-stock portfolio completely in aggressive Nasdaq stocks. To approximate his portfolio's performance we use the Nasdaq Composite Index. The preceding data show that his January 1, 2012, $100,000 portfolio has risen to $112,700.

Betty is more cautious but still an aggressive investor. She also believed stocks were her best alternative, but she was not comfortable with a portfolio concentrated in "speculative" stocks. She invested her all-stock portfolio to achieve broad market diversification. We use the Dow Jones U.S. Total Market Index to approximate her results. The preceding data show her $100,000 portfolio is now worth $108,400.

Carl is our moderate investor. He wants broad stock exposure, but felt it was a good idea to hedge his bets with some bonds to reduce his risk and generate some cash to dampen volatility. He allocates his portfolio to 60 percent diversified stocks and 40 percent intermediate Treasury securities. …

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