Are You Getting a False Sense of Security?

Over the last few years, the S&P 500 index has been on one heck of a run. This index has produced a very good return and has beaten many professionally managed accounts. It also has done this with little volatility. This combination has fooled many investors into thinking they can just rely on a passive, non-managed, and low-cost index fund instead of their professionally managed accounts.
So, are you getting a false sense of security? Are you concerned with world events and how they might impact the financial markets in the future?
Yes, the S&P 500 index has done well the last few years. But, this has occurred after it lost nearly half its value between August of 2000 and September of 2002, and over half its value between October of 2007 and February of 2009. In fact, some people are still trying to get those losses back even though the index has fully recovered.
But now that the S&P 500 is setting records highs, unfortunately, many people have simply forgotten those very bad years and what can happen in a passive index. Per my teaching responsibilities and relationships throughout the financial services industry, I get to see and hear first-hand the thoughts and feelings from many different clients, consultants and advisors.
The bottom line is that many investors are starting to feel that the S&P 500 or other passive index funds are the only thing they need. They are wondering why they are paying management fees for performance that is not keeping up with the so called ‘overall markets.’ So, are they right to feel that way and should they move to a cheaper, non-managed passive index fund in hopes for less cost and better performance? Does the last few years having positive increases in many equity index values indicate that trend will continue? With many of these passive indexes at all-time highs this type of thinking could be a big mistake. Buying these indexes at richly priced levels typically equals great downside risk.
To learn more or discuss your specific desires contact me at 702-462-7233 or Agoodman@AskAdamGoodman.com
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