“The market is up in 2023, so why hasn’t my investment portfolio made a lot of money?” This is a relatively common question that requires math, a narrative, and knowing how an index works to answer.
You may have noticed the general rebound of the S&P 500 in 2023 after a fairly dismal performance for most of 2022. After opening 2022 at 4,796, the index fell on and off throughout the year and finished at 3,840. That’s a 20% drop in the index value over the calendar year.
Enter 2023. Other than a late winter reversal and a semi-plateau through the summer, the S&P 500 value has marched steadily upward all year. As of September 21st, it set at 4,352. That’s a 13% rebound.
So the simplest explanation is that while the index’s value went down for most of 2022, and back up for most of 2023, it hasn’t fully recovered its losses. It’s also been a matter of odd timing. The index was very near its peak value as 2022 started out, so the losses show up on the year-over-year performance in a unique way. The calendar was very kind to 2021’s performance results, but much less so of 2022.
Also, other factors have played havoc with investment returns versus the S&P index. The S&P 500 is cap-weighted. That means that the biggest companies have more effect than smaller ones. As of August 1st,(Coryanne Hicks, 2023) 7 companies make up 26% of the entire index value. Those companies are large tech giants Apple, Alphabet, Microsoft, Amazon, Tesla, Nvidia, and Meta.
Why does that matter? Well these 7 companies have had an amazing run this year. Look at the chart below from Horizon Investments. It’s an excellent illustration of what’s happened to the S&P as of the end of July.
Why does that matter to you? Well, if your portfolio isn’t in an indexed fund that directly tracks the S&P, then you could have missed out on this outperformance. A well-diversified investment mix that includes small and medium-sized companies not listed on the S&P 500, as well as international stocks, would not be as exposed these tremendous gains.
So, yeah, your portfolio may still be worth less than it was in December of 2021. It may not recovered as far as the S&P 500 even. Does that mean there’s something wrong with your portfolio? Not at all. Your investments are diversified for a reason. Remember, investing a large portion of your portfolio in just 7 stocks leaves you exposed to outsized gains as well as losses. Investors that have 26% of their portfolio invested that heavily could experience more volatility than they planned for.
Remember, if you’re investing in the stock market, you cannot get too caught up in short-term gains or losses. You must stay disciplined and play the long game. If you’re unsure or have questions, talk to a trusted advisor and make sure your investments fit you. Don’t chase a train that may have already left the station.
As always, this and many other articles can be found on our website at paducahfinancialconsultants.com. Feel free to explore the library.