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As my former colleague and legendary trader would quip when one of his personal investments would go south, “I feelteam-jon-giordani like I spend my whole life trying to get back to even.”  I was reminded of him last week as I reviewed recent housing data.  Home prices have finally round-tripped and returned to near all-time high prices that were last seen over 10 years ago.  This is good news for the US consumer and the economy that are both still trying to heal after the great financial and economic recession of last decade.  However, this is a long time to wait to just “get even” (3650+ days).

The concentrated investor that owned all US stocks at the peak in 2007 watched his portfolio drop over 50% before it bottomed out in March, 2009.  It would have taken nearly 4.5 years (1637 days) for this portfolio to get back to even.  This assumes the investor didn’t panic, sell out and lock-in losses.  The diversified investor who owned both stocks and bonds fared much better.    His portfolio’s paper losses were a little over 20%.  It took only around 2 years (745 days) for this portfolio to fully recover.

We learn as kids to not put all our eggs in one basket.  It is why diversification is so important for long term growth of personal assets.  Sometimes you win by not losing.  Deep losses require subsequent magnified gains to breakeven (see table below).  Don’t spend your life trying to get back to even.  Instead, keep it simple:  Know how much risk is in your portfolio.  Eliminate fear and greed from your decision making process.  Diversify by utilizing different asset classes.  Rebalance your portfolio as needed.
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Disclosure:  Housing data refers to S&P CoreLogic Case-Shiller US National Home Price Index.  US stocks refers to the S&P 500 Index.  Bonds refers to the Barclays US Aggregate Bond Index.  The diversified investor’s portfolio statistics assume an investment of 40% in US stocks and 60% in bonds.  Portfolio analytics sources:  Kwanti and Morningstar, Inc.
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As Chief Investment Officer for Planning Solutions Group, Jon provides innovative investment planning strategies to our clients. He has over 15 years of experience in the financial services industry. Prior to joining Planning Solutions Group, Jon worked in the institutional market place. He provided investment advice to a client base consisting of large asset management and mutual fund companies, state retirement funds and hedge funds. His experience in the institutional market included Vice President of Institutional Sales for Deutsche Bank in Baltimore and Chicago. Prior to this, Jon worked as a research analyst for Croft-Leominster, an investment advisory firm in Baltimore. His focus was analyzing and recommending securities for inclusion in client portfolios. Jon is a Chartered Financial Analyst (CFA) charterholder. He has been recognized as a Five Star Wealth Manager, featured in Baltimore Magazine. He is also NASD Series 7 and 63 registered. Jon graduated from the Johns Hopkins University where he majored in economics. He lives in Towson, MD with his wife & two sons. To email Jon:jgiordani@psgplanning.com