Expert: Warren Boroson - 9/25/2009

Question
QUESTION: I have a portfolio of funds that is rated moderately aggressive. In the last six  months, it has performed at less than the S&P index by over 3%.  My advisor says more time is required for it to beat the S&P.  Should I hang in there or look for a new advisor?  Thanks for your input.

ANSWER: Dear Jim--

Visit a large library, go to the reference desk, and ask to see a copy of Morningstar Mutual Funds. Are you familiar with it?

Look up your funds. The thin booklet will give you a fund's rating--one star to five (best). It will also tell you how the fund has performed and how risky it has been.

Next to the listing will be a page number.

Look up the fund in one of the thicker booklets. M* will forthrightly tell you whether a particular fund should be held or sold.

If M* is dubious about a good percentage of your funds, you should look for a new adviser.

And if you decide to start doing things yourself--building a better portfolio--M* has lots of recommendations.

Best,

WB

---------- FOLLOW-UP ----------

QUESTION: Thanks Warren, I'll check it out when I can get to a large library.  I tried on M*'s website, but you have to suscribe to get more info.  My original question was more general in nature. Given a diversified, moderately aggressive portfolio of above average performing funds, would one expect it to beat the S&P performance over a six month period in an expanding market as we have had?  I'm just trying to better understand the basics of investing and normal assumptions.  Thanks again,
Jim

Answer
Dear Jim--

Over six months, almost anything can happen.
But hardly any diversified, moderately aggressive portfolio would beat the S&P 500.
One reason: That portfolio has expenses. The S&P 500 doesn't.

In any case, over long, long periods of time, the stock market can misbehave. It can do what it isn't supposed to do.
For example: Small-cap stocks generally do better than large caps. But for many years, large caps may do better.
Value stocks generally do better than growth, but for many years growth stocks may do better.
Stocks generally do better than  bonds, but over several 10 year periods,  bonds have done better. Including the most recent 10 years.

In short, don't expect anything logical to happen over a mere six month period.

Now go to a library and look up what M* says about your funds.


WB