A Lost Decade...Really?

Too often, whether by tv, radio or in print, we are told that we have just experienced the lost decade in the stock market. I have grown tired of hearing this and strive to prove that with a properly diversified and structured portfolio, this statement is an outright lie. Unfortunately though, for too many, this statement actually may ring true when they look at their portfolio. That is because most "financial advisors" in our industry fail to recognize the science behind investing and the proper way to avoid unnecessary risks.

Let's take a look at the graph below.



This actually shows the return of the S&P 500, which consists mainly of large company stocks, from January 1, 2000 - December 31, 2010. If your portfolio manager is like most and tracking the S&P 500, then yes, you may have experienced a lost decade.

However, if you follow the fundamentals of investing and have built a properly diversified and allocated portfolio, you would have fared much better. Below is the same chart but compared to two portfolios structurally allocated along all the major asset classes (domestic, international, emerging, large company, small company, value, fixed income, etc).



As you see, there isn't any substitution for sound advice and proper investing. Both balanced strategies had total returns over 100%*. Unfortunately, too many of the investing public, along with their well intentioned advisors, fall prey to the noise of the financial media and market prognosticators. If there is anything to learn from this, it is that financial science provides powerful guidelines on how to seek a successful investment experience which is derived by diversification, portfolio structure, maintaining discipline and awareness, and the reduction of frictions (costs and taxes).

Diversification neither guarantees a profit nor prevents a loss. S&P 500 Index copyright (c) 2010 by Standard & Poor's Financial Services LLC, All rights reserved. Index is not available for direct investment; its performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

*Source for DFA Strategies: Dimensional Fund Advisors. Contact Arcon Wealth Management, LLC for how to obtain complete information on performance, investment objectives, risks, advisory fees and expenses of Dimensional's funds. Performance data represents past performance and does not predict future performance.