Avoid the pain of regret: a disciplined approach to retirement savings

Marino_R 150 x 150Roddy Marino, CIMAExecutive Vice President
National Accounts & Distribution

With 39 percent of Americans feeling ill-prepared for retirement, according to the Employee Benefit Research Institute’s 2017 Retirement Confidence Survey, we are often challenged to come up with a solution to make saving easier.[1] Unfortunately, there are no easy solutions, and in the absence of unplanned windfalls, there are no shortcuts. There are, however, strategies that will help you overcome behavioral impediments by infusing discipline into your retirement savings plan. Here are six strategies to consider:

  1. Automate the process. The best way to make retirement savings a priority is to put it on autopilot, so each time you get paid you save for the future without giving it much conscious thought. If you have an employer-sponsored retirement plan, arrange for a percentage of your pay before taxes to go directly into your retirement account. Also, commit to increasing the percentage you allocate to your retirement account every time you get a raise. The impact of automated savings plans to net pay is often far less than anticipated, and after time it goes somewhat unnoticed. The impact on your nest egg, however, could be quite significant.
  2. Make it binding. Make your future self a promise to refrain from withdrawing any money from your account before retirement. The best way to protect your retirement account is to establish a separate emergency reserve fund. It is typically recommend setting aside six months’ worth of income to cover unexpected expenses like uncovered medical costs, home repairs, or other unplanned surprises. With an emergency fund, you have a resource to fund whatever immediate needs arise without tapping your retirement account or delaying your savings goals.
  3. Pay your future self what you paid your creditors. After you’ve cleared an outstanding debt, consider “continuing” those payments by making deposits into your retirement account. For example, if you pay off a car loan that previously cost you $500 a month, allocate that same amount to your retirement account.
  4. Establish a home for “found” money.  It’s not uncommon for someone to view inheritances, tax refunds, and company bonuses as “found money,” and splurge on items they would not otherwise buy. If you receive a windfall or even a little extra, consider allocating the amount into three portions: one for long-term savings goals, one for short-term savings goals, and one to reward yourself.
  5. Use reward points. Several credit card companies offer specialized cash back programs which convert rewards points into cash deposits into 529 college savings plans, brokerage accounts, or other retirement accounts (e.g., IRAs).
  6. Get an accountability partner. To increase the likelihood of meeting your retirement savings goals, ask someone to hold your feet to the fire. Your accountability partner should be objective, and unlike a spouse, have no vested interest in daily household financial decisions. Your accountability partner should track your progress, offer encouragement, and continually remind you of your long-term goal. If you are already working with a financial advisor, ask him or her to take an active role in keeping you motivated and engaged in meeting your retirement goals.

As the late Jim Rohn once said, “We must all suffer from one of two pains: the pain of discipline or experience the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” Failing to save enough for retirement comes in as the top financial regret of older Americans.[2] So, if saving for retirement poses a challenge to you today, give some thought to the challenges your future self will face if you don’t take these steps.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

[1] Retirement Confidence Survey 2017, Employee Benefit Research Institute

[2] Bankrate Financial Security Index Survey, May 17, 2016

Investment Insights Podcast: Who is the next Fed Chair?

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded October 30, 2017), Tim discusses who President Trump might announce as his nominee for Chair of the Board of Governors of the Federal Reserve System.

Quick hits:

  • The three leading candidates seem to be Fed Governor Jerome Powell, Stanford Professor John Taylor and Chairwoman Yellen.
  • While any prediction tied to the Trump Administration comes with a heightened level of risk, we believe Mr. Powell will be chosen by the President to serve as the next Fed Chair.
  • If Mr. Powell does become the next Fed Chair, we don’t expect much of a change near-term concerning U.S. monetary policy.

For Tim’s full insights, click here to listen to the audio recording.

 

investment podcast (15)

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Are you worrying about the wrong things?

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Take a moment and imagine the person you love the most. Perhaps it’s your spouse or partner; maybe it’s a beloved parent. If that person is near, I’d like for you to put the phone or tablet down and go give them a big hug. Tell them how much you appreciate them and all the reasons why you love them. If they aren’t proximal, say a small prayer of thanks or think good thoughts about the positive impact they have in your life before you return to reading. Go on…

…You back now? Ok, great, welcome back.

Now, I want you to realize that the person you’ve just spent the last few minutes idolizing is more likely to kill you than any stranger, terrorist, or bogeyman. In fact, your appendix is more likely to off you than Al Qaida or ISIS. We tend to fear all the wrong things. We’re scared of high-profile, low probability threats like terrorist attacks and home invasions, but we routinely ignore more mundane but probabilistic hazards like not wearing a seatbelt or eating unhealthily. In general, we stink at assessing risk in many predictable ways – chief among them is our tendency to worry disproportionately about low-probability-high-salience events.

Quick! Name all the words you can that begin with the letter “K.” Go on, I’m not listening. How many were you able to come up with? 

Now, name all the words you can in which K is the third letter. How many could you name this time?

If you are like most people, you found it easier to generate a list of words that begin with K; the words probably came to you more quickly and were more plentiful in number. But, did you know that there are three times as many words in which K is the third letter than there are that start with K? If that’s the case, why is it so much easier to create a list of words that start with K?

It turns out that our mind’s retrieval process is far from perfect, and a number of biases play into our ability to recall. Psychologists call this fallibility in your memory retrieval mechanism the “availability heuristic,” which simply means that we predict the likelihood of an event based on things we can easily call to mind. Unfortunately for us, the imperfections of the availability heuristic are hard at work as we attempt to gauge the riskiness of different ways of living.

In addition to having a memory better suited to recall things at the beginning and the end of a list, we are also better able to envision things that are scary. I know this first hand. Roughly six years ago, I moved to the North Shore of Hawaii along with my wife for a six-month internship. Although our lodging was humble, we were thrilled to be together in paradise and eager to immerse ourselves in all the local culture and natural beauty it had to offer. That is, until I watched “Shark Week.”

For the uninitiated, “Shark Week” is the Discovery Channel’s seven-day documentary programming binge featuring all things finned and scary. A typical program begins by detailing sharks’ predatory powers, refined over eons of evolution, as they are brought to bear on the lives of some unlucky surfers. As the show nears its end, the narrator typically makes the requisite plea for appreciating these noble beasts, a message that has inevitably been over- ridden by the previous 60 minutes of fear mongering.

For one week straight, I sat transfixed by the accounts of one-legged surfers undeterred by their ill fortune (“Gotta get back on the board, dude”) and waders who had narrowly escaped with their lives. Heretofore an excellent swimmer and ocean lover, I resolved at the end of that week that I would not set foot in Hawaiian waters. And indeed, I did not. So, traumatized was I by the availability of bad news that I found myself unable to muster the courage to snorkel, dive or do any of the other activities I had so looked forward to just a week ago.

In reality, the chance of a shark attacking me was virtually nonexistent. The odds of me getting away with murder (about 1 in 2), being made a Saint (about 1 in 20 million) and having my pajamas catch fire (about 1 in 30 million), were all exponentially greater than me being bitten by a shark (about 1 in 300 million). My perception of risk was warped wildly by my choice to watch a program that played on human fear for ratings and my actions played out accordingly.

The easy availability of financial news (especially the scary kind) paired with the human tendency to overweight danger means that many investors walk around in a state of near-panic all the time. All the while, they are ignoring things that are truly damaging wealth over time like bad behavior, excessive fees, a lack of diversification and inadequate savings. It is only by understanding how our brains can play tricks that we truly grasp that panic selling is more hazardous than a recession just as surely as a hamburger can be more harmful than a shark.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800-333-4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

Investment Insights Podcast: Markets only go up until they don’t

Goins_Podcast
Andrew Goins
, Investment Manager

On this week’s podcast (recorded October 20, 2017), Andrew revisits Black Monday, the largest single day market decline in history. He provides commentary on the measures taken after the crash and where the market currently stands today.

Quick hits:Last week, we celebrated the 30th anniversary of Black Monday, when on October 19th, 1987 the Dow Jones Industrial Average declined 22.6%.

  • As we look to today, with only one negative quarter for the S&P 500 in the last 4 and a half years, it’s easy to forget that circuit breakers exist and that markets can correct and even crash.
  • The Dow Jones closed above 23,000 for the first time last Wednesday and ended the week even higher.

For Andrew’s full insights, click here to listen to the audio recording.

investment podcast (14)

 

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

A dozen steps to a smooth transition to retirement

CookPaul-150-x-150Paul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

If there were one thing that sudden retirees wish they had, it would be time to think things through while still gainfully employed. They wish they had time to plan. The term “sudden retiree” refers to an ever-growing population of workers who found themselves retired due to unexpected events, such as the sale of a business, caregiving for a family member, downsizing, or sickness. Sudden retirees are typically forced to make decisions before they feel ready to do so.

If you are fortunate enough to exercise some control over when you will retire, you have an advantage over sudden retirees. You have the gift of time. You can prepare. You can think through all the angles and possibilities. You can ensure the smoothest possible transition by taking the twelve steps listed below.

  1. Visualize your exit. While retirement is a process, not a one-time event, it helps, to think about the event of exiting the workforce. How will your final days, weeks and months of work look? How will you spend your time? How can you pass the baton in a way you are most comfortable? Is it important to you to leave a legacy or footprint on your employer? If so, what actions will need to occur to ensure the legacy you desire?
  2. Visualize your entrance. Give thought to how you want to spend your days in retirement. What will your daily routine entail? Are there habits you want to form … or break? No longer confined to career-related personas, retirement provides an opportunity to reshape your identity and decide how you will present yourself to the world.
  3. Freeze frame. Take a snapshot of your current financial status by listing your assets, debts, interest rates on debts, and income.
  4. Retire high-interest debt. If possible, try to pay off any high-interest credit card debt, personal loans or auto loans before retirement. Typically, it is not wise to tap into your 401(k) or IRA to repay debt. If you are under the age of 59 ½, you could be subject to penalties and income tax liabilities, which could nullify any benefits you gain from the debt repayment.
  5. Revisit your retirement plan. Certain assumptions went into your retirement plan. When you know you are within 12 months of retirement, meet with your financial advisor to revisit those assumptions and strategies, and rebalance your portfolio with your newly established time horizon in mind.
  6. Make maximum contributions to your retirement accounts. If you have fallen short of maximum contributions, now is the time to step up your savings.
  7. Decide where and how you will live. Where you decide to live, including the location and the type of home, impacts nearly every dimension of your retirement experience. No longer anchored by the geographic constraints of your employment, retirement offers you the opportunity to re-think or re-commit to your residence. A study conducted by Bank of America Merrill Lynch shows 64 percent will move at least once during retirement, with 37 percent having already moved, and 27 percent anticipating doing so.[1] Factors to consider when making your decision include the cost of living in the area you’ve selected, weather, your home’s capacity to evolve into a more senior-friendly design, public transportation and services, accessibility to medical care, and proximity to family and friends.
  8. Lock down your retirement expenses. Some people believe they will see a significant decrease in post-retirement expenses; however, that may not be the case. In many instance, there is a trade-off in expenses. For example, you may not have the daily expenses of your commute to work, but taking long trips more often may nullify any savings. Most retirees’ expenses follow a U-shaped pattern. For the first couple of years, the expenses mimic pre-retirement expenses, then as the retiree settles in, expenses dip, only to rise as health care costs kick in.
  9. Formulate your income plan, by
    1. Deciding your election age for social security
    2. Considering other sources of income including fixed, immediate, and indexed annuity strategies, pensions, and even your house
    3. Creating a spend-down strategy so you know when and how to withdraw income from all potential sources
  10. Take preventative health measures. When it comes to determining retirement well-being, health is typically more important than wealth. Retirees in better health have the added peace of mind that comes from financial security. They tend to enjoy retirement more, feel fulfilled and are not as prone to negative emotions as their less healthy counterparts. [1] For most, health care costs top the retirement expenses charts. It makes good financial and medical sense to establish and adhere to healthy habits as a cost-containment measure and lifestyle booster.
  11. Strengthen your networks. Retirees who have strong social ties report higher levels of overall happiness in retirement. While still working, makes sure to build your social networks, so you have ways to connect with people who share your interests.
  12. Get serious about your emergency fund. It’s important to plan for how you will address emergencies, big and small, in retirement. According to a recent survey, 90 percent of Americans have endured at least one setback that harmed their retirement savings. Setbacks vary from caring for adult children, to college expenses stretching over six years instead of four. Others include loss of a job, assisted living expenses, and disappointing stock performance. On average, unexpected life events can cost retirees nearly $117,000.[2] An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

[1]  https://mlaem.fs.ml.com/content/dam/ML/Articles/pdf/ml_Home-Retirement.pdf

[2] http://money.cnn.com/2013/05/15/retirement/retirement-savings/index.html

Why every retirement plan needs a managed account

Marino_R 150 x 150Roddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

Meeting the unique and specialized needs of retirement plan participants requires looking beyond a “one-size fits all” solution.

Managed accounts offer personalized, tailored asset allocation for individual participants and fiduciary oversight. Using investment goals as a guide, financial advisors can help determine the appropriate asset allocation based on risk tolerance and investment time horizon. This approach provides a more holistic view for participants instead of focusing on the age of retirement as target-date funds do. Additionally, unlike target date funds, managed accounts allow for asset allocation depending on the market environment.

Managed Accounts 2

Don’t let bad behavior get in the way

Investing can be an emotional rollercoaster and many investors find themselves reacting to the market highs and lows. For this reason, its beneficial to be invested in a managed account that has a team of investment professionals monitoring the market and making asset allocation adjustments as necessary.

Choose a comprehensive retirement partner

Because no two investors are alike, it’s important to work with a firm that offers retirement options that are personalized to individual participant goals rather than focusing on one component, the age of retirement.

Helping participants today

The retirement landscape is rapidly evolving and its important to evaluate the available options to find a partner that will offer the most appropriate solutions for participant’s needs. Offering a sophisticated managed account solution that addresses needs, risk tolerance, and investment time horizon can help participants reach their retirement goals.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Harvey & Irma upend the jobs market

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded October 13, 2017), Tim discusses why the jobs market turned south after seven years of net job growth, and if the disappointing September report is a harbinger of a weakening economy or possibly even a recession.

Quick hits:

  • According to the Department of Labor, the U.S. lost 33,000 jobs in September, marking the first month in seven years that the labor market failed to expand.
  • One can assume Harvey and Irma had a significant – and temporary – impact on the jobs market.
  • While Hurricanes Harvey and Irma were tragic events, we don’t see them having a lasting, negative impact on the economy, which remains on very firm footing.

For Tim’s full insights, click here to listen to the audio recording.

investment podcast (13)

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

A tale of two billboards

O'Hara 150x150Jim O’Hara, CISM, CISSP, CEH, Information Security Officer

Imagine a plush community of beautiful, sprawling estates where each property is protected by a high-end security system.  Now imagine two enormous billboards along the nearby interstate.  Once per month, the first billboard displays a list of newly discovered flaws in the community’s security systems.  The second describes methods to repair the same flaws.  Which billboard would be more closely watched?  Who would be watching it?

By now it’s common knowledge that the Equifax breach was a direct result of the company’s failure to properly maintain a webserver.  What’s less talked about is the fact that the exploited Apache Struts flaw had been published and rated “Critical” by security authorities well in advance of the breach.  Even less discussed is Equifax’s admission to knowing of the vulnerability at the time of breach, but not applying the associated patch, which had been available for months.

Software patching is essentially the 2-billboard scenario described above:

Billboard #1:  The Common Vulnerabilities and Exposures (CVEs) database.  Maintained by the Cyber Security FFRDC, and funded by the Department of Homeland Security, the CVEs database is an ever-updated list of all known software vulnerabilities.

Billboard #2:  A collection of patches and other mitigating controls issued by software providers and security authorities, designed to mitigate the vulnerabilities listed on Billboard #1.

The primary shortcoming of this system is the vulnerability information on Billboard #1 is almost always newer than the remediation information on Billboard #2.  While most software providers strive to release patches concurrently with the publication of the corresponding CVE, this is not always possible.  This occasionally creates a period of time when hackers can use the CVE data to attack vulnerable systems.  In fact, Verizon’s 2015 Data Breach Investigation Report found that half of published CVEs are used to successfully compromise some systems within two weeks.  Hackers are keeping a close eye on the CVE database, and working quickly to weaponize new information it provides.  So, for users and IT departments, it’s an unwinnable race, right?  Not so fast.

The tale of two billboards

The same Verizon study also found that 99.9% of system compromises occurred more than a year after the associated CVEs and corresponding patches were made public.  So, while the hackers may be fast, there is plenty of blame left for the victims –  99.9%, in fact.  Going back to our community of beautiful, sprawling estates, this suggests that even if home owners are bothering to read Billboard #2, many are not acting on the information it contains.  Equifax.

The key to keeping systems protected is a strong patch management program.  Responsible organizations put in place policies, procedures and systems necessary to ensure vulnerabilities are quickly identified and thoroughly mitigated.  Despite a strong patch management process, however, it remains possible that an attacker may find and exploit a vulnerability not yet listed in the CVEs database.  This is known as a “Zero Day” attack.  In order to mitigate Zero Day attacks, organizations must utilize a layered defense-in-depth strategy, which would include implementation of controls such as malware detection software, next generation firewalls, intrusion detection/prevention systems (IDPS), and data loss protection (DLP) technologies.

What can individual advisors and clients do?

 1. Ensure your operating system and software are configured to update automatically.  Waiting for an update to install can be frustrating, but it’s nothing compared to the sinking feeling you’ll experience if your system is compromised.  As a bonus, you’ll no longer see those annoying reminders in the task bar.

2. Consider installing malware detection software on your computer.  This would be in addition to any anti-virus solutions already installed.  There are many free and low-cost malware detection and eradication options available.  Research the tool before installing to ensure it is legitimate and properly supported.

3. Encrypt critical and sensitive data.  Password protecting spreadsheets, Word documents, and PDFs containing sensitive data will greatly reduce the impact of a Zero Day attack on your computer.  The attack may compromise your system, but it won’t be able to decrypt your protected files.  This could spare you many uncomfortable phone calls.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: A review of September markets

Lowman_150x150px

Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded October 9, 2017), Leigh provides a quick review of September markets.

 

Quick hits:

  • In September, more clarity surrounding anticipated tax reform policies helped boost consumer and business sentiment and there is now a higher probability that corporate tax cuts and/or move to a territorial tax system will be enacted in the beginning of 2018.
  • Overall macroeconomic data leans positive and we expect the positive market momentum we have seen so far in 2017 will carry through to the end of the year.
  • We remain positive on risk assets over the intermediate-term but recognize we are in the later innings of the bull market.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full October Market and Economic Outlook.

 

 

market outlook (2)

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

 

No apologies needed – The Diversification Apology Index

Rosenberger 150 x 150Andrew Rosenberger, CFA, Senior Investment Manager

Being truly diversified means always having to apologize for something.  Diversification, like investing in general, is oftentimes easier said than done.  We can theorize about 30 year time horizons; but emotions, herd mentality, individual circumstances, and a largely unpredictable future make practice far more difficult than theory.  For example, prior to the Financial Crisis when international stocks were ripping higher, investors questioned why more of their equity exposure wasn’t allocated toward international and emerging market stocks.  Last year, clients questioned why any of their equity exposure was allocated toward international companies.  As diversified asset allocators, we are constantly facing something in our portfolios which is lagging the broader markets.

With that said, 2017 certainly “feels” like it is shaping up to be a good year for diversified investors.  Most asset classes are up on the year with select ones, like international equities, handily outperforming the S&P 500.  But why does this year “feel” different than those in the past?  To answer that, let me introduce the “Diversification Apology Index.”

Diversification Apology Index 2

Source: Brinker Capital, FactSet, Lipper: 1/1/05 to 8/31/17

To explain further, let me first mention that not everything is performing well this year.  Commodities are slightly negative year-to-date, while REITs cling to only fractionally positive returns.  Yet, when you look at most investors’ portfolios, commodities and REITs make up only a minor portion of their overall asset allocation.  International equities, on the other hand, tend to represent a much larger investable universe and thus tend to make up a more significant portion of a diversified asset allocation.  To demonstrate this idea, we complied all U.S. open-end mutual funds and grouped them into broad asset classes based on their Lipper classifications.  With the entire mutual fund universe in hand, we then asset weighted each fund according to its corresponding asset class.  In short, we created a proxy for the ‘market portfolio.’  While we don’t believe this represents the average investors’ asset allocation per-se, it does give us some indication on relative positioning.  For example, we can see that the assets under management (AUM) for the international and global equity mutual funds is nearly twice as large as that of commodities, natural resources and MLPs.  Similarly, REITs make up only 3 percent of the total mutual fund AUM.  Although investors will differ based on their risk tolerance, objectives, biases, and investment philosophy, the aggregate mutual fund AUM provides some insight as to where the investors tend to allocate their investable capital.

US Mutual Fund Universe by Asset Class 2

Source: Brinker Capital, FactSet, Lipper: as of 6/30/17

With an idea relative asset class weightings, we can then compare recent performance of each of these asset classes to how a very traditional 60 percent S&P 500, 40 percent Barclays Aggregate portfolio would perform.  When asset classes with relatively small weights underperform, investors tend not to take all that much notice.  Hence, there is little to ‘apologize’ for.  However, when more meaningfully weighted asset classes underperform, the results stand out like a sore thumb.

Therein lies the basic methodology for the “Diversification Apology Index”.  After staying in an elevated range since 2011, we now see the benefits of diversification more similar to that of before the Financial Crisis.  Although we shouldn’t interpret this gauge as having any predictive power, it does bring hope that conversations with investors will be more focused on goals and how to meet objectives rather than why one may not be keeping up with the S&P 500.  Ultimately though, we should take comfort in knowing that it’s a good thing when select asset classes underperform, as it means that we are truly benefiting from a diversified portfolio.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.