Newspaper article Sarasota Herald Tribune

Investors Glad for Returns

Newspaper article Sarasota Herald Tribune

Investors Glad for Returns

Article excerpt

And some are really glad.

INVESTORS AROUND THE WORLD rang in the New Year with many reasons to be joyful. The U.S. market was ahead 14.1 percent, as measured by the Dow Jones U.S. Total Market Index, and the rest of the world was ahead by 13.6 percent, as measured by the Dow Jones Global Index-ex U.S.

Investors who chose U.S. Treasury securities were rewarded with only low single-digit returns.

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

The relevant data for the period Jan. 1, 2012, to Dec. 31, 2012, is: The Dow Jones U.S. Total Market Index returned 14.1 percent; The Nasdaq Composite returned 15.9 percent; and the Intermediate Treasury Securities returned 2.8 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 in aggressive Nasdaq stocks. To approximate his portfolio's performance, we use the Nasdaq Composite Index. The preceding data show his Jan. 1, 2012, $100,000 portfolio has risen to $115,900.

Betty is more cautious but still an aggressive investor. She also believed that 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 $114,100.

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. The preceding data show his $100,000 portfolio has risen to $109,580.

Dorothy is our moderately conservative investor. …

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