What We're thinking: Advisor Portfolios Underperform

A recent article in “Think Advisor” (an advisor trade journal) was titled “Advisor Portfolio Models Underperformed When Markets Tanked.”

What?! I clicked.

 

In the article, the box score shown at the right has a column labelled "Representative advisor portfolio return" for five portfolios during the February 20th to March 23rd period-- the meat of the Corona Crash.

 

Being incurably curious, a question arose: Have our clients been competitive with the “representative advisor?” Because we use low-cost, indexed-based, globally diversified portfolios, we imagined we were pretty close to the representative advisor. 

We compared Vanguard’s Life Strategy funds with the "representative advisor" portfolios because those are the actual investments we suggest, and the ones we use ourselves. We eat our own cooking. Here’s what we found:

     


                                  
Portfolio                    Advisor Return           Your Return*           Your Advantage
         

Conservative                   -13.6%                VASIX     - 8.9%                   +4.7%

Mod Conservative           -21.1%                VSCGX  -15.8%                  +5.3%

Moderate                          -24.6%                50/50      -19.1%                  +5.5%

Mod Aggressive              -27.8%                VSMGX  -22.3%                  +5.5%

Aggressive                      -32.9%                 VASGX   -28.3%                  +4.6%

*The highlighted blue areas are where most client portfolios reside. Vanguard fund data was derived from Morningstar. Individual portfolio results will vary.

You're reading that right. Our approach delivered significant positive differences.

It might be argued that this was just a short-term, one-off example. If that were true, we wouldn't have bothered. But unfortunately, it's a recognizable pattern. After costs and after all the "special," "unique," and "sophisticated" approaches that many companies and planners claim to offer, there's little if anything to show for it.

Here are the take-aways:

·       A disciplined commitment to proven strategies works. Especially during high-stress times.

·       Diversification works. Even when you think you don’t like something in the portfolio.

·       Saving aggressively and rebalancing to target asset allocations works.

·       Partnering with an unconflicted, advice-only fiduciary works.

·       Tuning out the news/noise works.

None of this is newly discovered. None of it has anything to do with a virus, politics, oil, or the price of tea in China. It's just unexciting, unsexy, boring, and amazingly competitive.

Jim Cosgrove, CFP, Plano, TX                             jim.cosgrove@verizon.net    972-489-0262
Jim Cosgrove, Dir of Research, San Jose, CA    jimcos42@gmail.com           408-674-6315