Content provided by Rusty Vanneman, CLS Chief Investment Officer

There are a few performance numbers that investors like to examine, which quite frankly, are over-rated in my opinion.

The first is the year-to-date (YTD) return. While admittedly a YTD return may provide some valuable context behind a portfolio’s behavior, it’s easy to overemphasize YTD returns simply because they’re from the beginning of a new calendar year. For most investors though, the more important returns to examine are longer-term such as since inception returns, and whether or not they are on pace to achieve long-term investment objectives.

Another return that gets a lot of press, and probably too much emotion by some, is how far prices are off from prior market highs. For instance, the S&P 500 recently dropped 8 percent off its price highs from May 22. Statistics about how much wealth was lost are often mentioned during periods like this. For long-term investors, however, is this type of information useful? And does it provide the proper perspective to consider how their wealth has changed over time?

Quite simply, using current price divided by a high price to consider changes in one’s wealth is not realistic. The market trades ever so briefly at that level, and even if one had the extreme foresight to consider liquidating their portfolio at the precise moment the market hit those highs, they most likely could not have exited at that price.

Perhaps a better measure to consider, instead of a high price, is to use the average price. From May 22 through July 3, for instance, the average closing price for the S&P 500 was approximately 1626. The market closed at 1615 on July 3. This was less than a 1 percent drop in value, and arguably a better representative of how a portfolio’s value has changed.

Examining average prices would definitely moderate reported price changes. Would this be useful for many investors? Given that most investors aren’t big fans of volatility (which often throws people off their investment plans), I suspect that it would.




This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance.