Forget all about the fear of missing out on investing in S&P 500 stocks. Now it's the fear of losing more, or FOLM, that's driving investors' worst nightmares.
Just look at your brokerage account. If you're like most people, you're losing money: Lots of it. No one enjoys an S&P 500 sell-off, but it's a whole lot worse if you've losing more than every else. But how do you know where you stand?
Let's make this simple. If you're down more than 16% this year, you're lagging the S&P 500. That's a bitter pill to take if you consider you can own the S&P 500 for just 0.09% owning the SPDR S&P 500 ETF Trust — and get a 1.4% dividend yield to boot. In dollars and cents that would mean your $10,000 investment in the S&P 500 a the start of the year would be worth just $8,383. That means more than $1,617 went up in smoke.
But you should compare your portfolio to some more nuanced portfolio mixes, too. If you're losing even more money than other investors, you might want to take a look at your investment strategy.
Sizing Up Against A 60-40 Portfolio
What's the most typical portfolio? It's one of 60% stocks and 40% bonds. And that's what makes the so-called 60-40 portfolio such a powerful comparison.
Let's say you put 60% of your $10,000 this year into the Vanguard Total Stock Market ETF and 40% in Vanguard Total Bond Market. You'd be sitting on a 14.3% loss this year. Again, in dollars your $10,000 investment would be worth $8,591 or roughly $1,400 less. That's an important number. Why? It means even though bonds are falling, the bond ETF is down 11% this year, you're still protected with a 60-40 allocation.
Digging Into S&P 500 More
But wait. It gets even more interesting if you look the time to craft a more diversified portfolio with nine ETFs rather than just two. Imagine putting 40% in bonds, but also 60% spread out among all sorts of stocks ranging from big-caps, to small-caps, value stocks, real estate and emerging markets. Had you done this, for just a little more complexity, your portfolio would be down just 12.2% this year. The smaller 5% drop in value stocks, like the Vanguard Value ETF, would have helped you out.
In dollars and cents, with the nine-ETF portfolio, your $10,000 portfolio would be worth $8,993. Yes, it's still a loss of more than $1,000. But still miles ahead of just owning the S&P 500.
Where Things Get Really Ugly
But what if you got really into FOMO and loaded up with speculative stocks. Investors are dumping shares of money-losing high-valuation stocks this year.
How much so? Shares of the Roundhill MEME ETF, bought up with stocks popular on message boards last year, is down a crushing 51% this year. So, your $10,000 invested in these types of stocks is only worth $4,858 now. And what about Cathie Wood, the pier piper of highly valued stocks? A $10,000 investment in her ARK Innovation ETF is now down even more than meme stocks, 56.5%. And that's enough to shred an initial $10,000 investment into just $5,140.
So if you haven't already, it's time to size up your portfolio. Market sell-offs like this one gives you an opportunity to see how you're positioned for the future. If you don't like what you see, it's likely time for a change.
Are You Losing More Than Everyone Else And The S&P 500
| Broad measures | ||||
|---|---|---|---|---|
| ETF | Symbol | Year-to-date % ch. | Value of $10,000 invested in January now | Drop of investment value |
| SPDR S&P 500 ETF Trust | -16.2% | 8,383 | -16.2% | |
| Invesco QQQ Trust, Series 1 | -25.3 | 7,469 | -25.3 | |
| Roundhill MEME | -51.4 | 4,858 | -51.4 | |
| ARK Innovation | -56.5 | 4,348 | -56.5 | |
| Standard 60/40 Portfolio | ||||
| Vanguard Total Stock Market | -17.7% | 8,228 | -17.7% | |
| Vanguard Total Bond Market ETF | -10.8 | 8,919 | -10.8 | |
| Total for 60/40 | 8,573 | -14.3 | ||
| Advanced 60/40 Portfolio | ||||
| Vanguard S&P 500 | -16.2% | 8,381 | -16.2% | |
| iShares MSCI EAFE Value | -8.4 | 9,159 | -8.4 | |
| Vanguard FTSE Emerging Markets | -17.5 | 8,249 | -17.5 | |
| Vanguard FTSE Developed Markets | -16.7 | 8,329 | 16.7 | |
| Vanguard Real Estate | -17.7 | 8,232 | -17.7 | |
| Vanguard Small-Cap Value | -10.7 | 8,934 | -10.7 | |
| Vanguard Small-Cap | -18.2 | 8,176 | -18.2 | |
| Vanguard Total Bond Market | -10.8 | 8,919 | -10.8 | |
| Vanguard Value | -5.4 | 9,458 | -5.4 | |
| Total for advanced 60/40 | 8,773 | -12.3% |
