Newspaper article Sarasota Herald Tribune

First Half of Year Takes Toll on Stocks

Newspaper article Sarasota Herald Tribune

First Half of Year Takes Toll on Stocks

Article excerpt

THE RATIONAL INVESTOR

This year has not been a bonanza for investors in the broad U.S. stock market. Representative of first half U.S. results (all results are through June 24) was the .7 percent total return of the Wilshire 5000 Index. Broad-based global stock indexes did worse, while U.S. bond returns were significantly better than U.S. stock returns.

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

The relevant data for the period Jan. 1, 2016, to June 24, 2016: the Wilshire 5000 returned .7 percent; the Nasdaq Composite returned -6 percent; intermediate-term Treasury securities returned 4.8 percent

Alan is our aggressive speculator. He is young and has time to recover from any losses, so he believes his money belongs in the stocks that can give him the largest gains. Alan invested his all- stock portfolio in aggressive Nasdaq stocks. We approximate his portfolio's performance with the Nasdaq Composite Index, which means his Jan. 1, 2016, $100,000 portfolio has fallen to $94,000.

Betty is more cautious but still an aggressive investor. She wanted to invest in stocks but was not comfortable with a portfolio concentrated in "speculative" stocks. So she chose a portfolio with broad market diversification. Using the Wilshire 5000 to approximate her results shows her $100,000 portfolio is now worth $100,700.

Carl is a moderate investor who wants broad stock exposure but also wants some bonds to reduce his risk and generate some cash. He allocates his portfolio to 60 percent diversified stocks and 40 percent intermediate-term Treasury securities. The preceding data show his $100,000 portfolio has risen to $102,340.

Dorothy, a moderately conservative investor, knows that in the long term stocks will almost certainly outperform bonds. But she has expenses that must be met, and is concerned that stocks could be depressed when she needs to pay them. …

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