Advisors: How to Create More Effective Equity Portfolios

By iSectors Chief Investment Officer, Chuck Self on May 15, 2018

As most advisors know, it is difficult to gain clients with strong performance but easy to lose them from weak results. Although most clients need equities to meet their financial goals, the asset class is full of traps that can be tripped. It is important to balance stocks’ long-term performance record with short-term movements that may scare clients.

Equity Returns to Individuals

Although stocks outperform every other asset class over long periods of time, the actual return received by individual investors don’t measure up to stated index returns. Putting aside the active vs. passive debate for another day, individuals investing in index funds receive reduced returns due to transaction costs and taxes. To not consider these costs will cause advisors to overstate expectations to clients, setting them up for disappointment.

Fortunately, Crestmont Research has created a returns database that takes these factors into account. There are four charts that are instructive:

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