>2004 was a great 3 months…..

>2004 has come to an end and it turns out that it was a banner year for a diversified portfolio. Even the S & P 500 managed to rise above the 10% mark, not bad considering all the pessimism that pervaded the markets during 2004. Interestingly enough, the vast majority of the returns earned in 2004 came after the election.

Through September of 2004 the S & P 500 was up a meager 1.41%, however a globally diversified portfolio of stock mutual funds was up between 5 – 7.5%. Once the election was over the markets took off, let by small, international, & value stocks. A globally diversified all stock portfolio ended up with a return between 19 -22% where a more balanced portfolio holding 60% globally diversified stock and 40% fixed income returned in the 11-14% range. It is interesting to note that a globally diversified 60/40 portfolio beat the S & P 500 index for the year with less fluctuation. While this is great, don’t expect it to happen every year. The same portfolio vastly underperformed the S & P 500 during the go-go years of 95-99 and on a total return basis since 1995. Diversification is the smart way to go, but the price you will pay is that sometimes you won’t perfectly track the market – THIS IS OK.

I’ll be chiming in with more observations about 2005 soon, keep checking back!

ScottyD

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