What is the Best Portfolio for You?


Michael Santelli, CFA, Managing Director, Portfolio Manager

“The best portfolio isn’t the one with the highest returns. The best portfolio is the one that clients can actually live with.”
-Barry Ritholtz

Recently the stock market has experienced heightened volatility. When people use the word “volatility” in this way, it usually means downside volatility. Everyone loves upside volatility, but it is the downside volatility that can cause investors to make poor long-term decisions. For validation, refer to the 20-year returns chart below from J.P. Morgan. The “average investor’s” returns from 1998-2018 are less than any of the asset classes or balanced portfolios shown on the chart. This is because investors collectively can make the wrong decisions in the face of downside volatility. They associate safety and security with a rising market and fear and despair with a falling market. As a result, they buy after the stock market has risen and sell after the stock market has fallen; buying high and selling low. Taken as a group, investors chase what has worked in the recent past and avoid what has not. This approach, as evidenced below, can lead to sub-optimal long-term results.

Diversification and the Average Investor

Diversification and the Average Investor

Slide courtesy of J.P. Morgan Asset Management, as published in Guide to the Markets® U.S. 3Q 2019 slide 64. Copyright 2019.

Part of the value of a financial advisor is to reverse this decision-making pattern and to help clients determine how much risk they are willing, able and need to take in their portfolio to achieve their long-term goals. Then, to coach them on the benefits of redirecting their short-term instincts when volatility hits in order to remain invested for the long-term. Helping clients move from the “average investor” to the “60/40” balanced portfolio returns, as shown in the table above, can make a significant difference over an investing lifetime. At Ancora, we seek to understand each client individually so that we can build a portfolio they can live with through thick and thin, thereby increasing the probability of reaching their long-term goals.

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