Has the Stock Market Demolished Your Portfolio?

• By Ron DeLegge, Editor
• On 12:01 pm EDT, Wednesday March 11, 2009

SAN DIEGO (ETFguide.com) - As of late, the economy hasn't been very nice to us and neither has the stock market. How have people been dealing with America's financial crisis?

The media is trying to help the public to identify who's guilty for what and who's not. 

Time Magazine just formulated a fun list of 25 individuals most responsible for today's financial mess. The list includes people like subprime mortgage lending czar, Angelo Mozilo, the Duke of Deregulation, Phil Gramm, and Mr. Softy, Christopher Cox.

Curiously, the greatest financial crackpot of our generation, Bernard Madoff came in 8th place, way ahead of former Federal Reserve Chairman, Alan Greenspan, who scored 17th. It's comical to learn that Americans really believe Madoff has done more damage to the U.S. economy than Greenspan.

The financial services industry has resorted to finger pointing.

In a recent letter to mutual fund shareholders, the Chairman of Fidelity Investments Edward C. 'Ned' Johnson III, gave the financial services industry an unexpected tongue lashing.

'Although we ended 2008 better than a number of financial firms, it was a year of painful experience for the financial services industry, a period laced with toxic investment waste and the casual use of other people's money by a number of institutions,' Johnson said.

Meanwhile, Fidelity's fund managers more than doubled their ownership stake of floundering bailout kid, Citigroup (NYSE: C - News) during the fourth quarter of last year. As Citi was sinking, so were Fidelity's equity mutual funds. In 2008, 64 percent of the firm's stock funds were beaten by its peers. Is this the 'toxic investment waste' Fidelity's Chairman was referring to? 

The government is still trying to forecast when things will get better.

Federal Reserve Chairman Ben Bernanke stated yesterday there's a 'good chance' the severe economic recession in the U.S. could end as soon as later this year. Feeling warm and fuzzy yet? Unfortunately for Ben, people still remember when he told Congress the subprime debacle was contained.

Has the stock market demolished your investment portfolio?

Benchmark Your Performance

Before global stocks began to melt, many individuals convinced themselves they were practicing the fine and proper art of asset allocation. In extreme cases, some portfolios were humming along with 100 percent exposure to stocks. Everything was fine, until one day it wasn't.

While the 16-month nosedive in the Dow Jones Industrial Average (NYSEArca: DIA - News), Nasdaq-100 (Nasdaq: QQQQ - News), and S&P 500 (NYSEArca: SPY - News) has been startling, the performance of individual stocks versus these major benchmarks in many cases has been substantially worse. Bank of America (NYSE: BAC - News), Citigroup (NYSE: C - News), and General Electric (NYSE: GE - News) are textbook examples of what happens when stock picks blow up. 

If you still own any individual stocks, start using Yahoo Finance's Basic Chart tool. By comparing your stock picks to major benchmarks like the Dow, S&P, and companies to their corresponding peer group it will give you an accurate picture on how you've been doing. Merely stating, 'I'm doing bad' or 'I'm doing good' is not a proper point of reference.

Remember, This isn't 'Play Money'

Roughly 90 percent of all mutual fund assets are parked in actively managed products. These are products where a fund manager is trying to beat a certain stock or bond benchmark, yet most don't. People don't realize they're using the wrong portfolio building blocks until it's often too late.

A treacherous detour in performance by broadly diversified bond funds illustrates this point.

In 2008, the Oppenheimer Core Bond A (Nasdaq: OPIGX - News) cratered 35.83% yet the Barclays Aggregate Bond Index as tracked by Vanguard's Total Bond Market ETF (NYSEArca: BND - News) climbed 5.17%. How long will it take Oppenheimer's shareholders to make up that 41% deficit?

How is this affecting real people's money?

'Thousands of parents of college-age children who thought their college savings were sheltered in low-risk portfolios watched their accounts shrink last year after a bond fund (Oppenheimer Core Bond Fund) offered by at least four state 529 plans lost more than a third of its value,' reported the USA Today. OPIGX is offered by 529 plans in Oregon, Texas, Maine and New Mexico.

What if 529 state administrators in charge of this mess had enough sense to just use low cost index funds or ETFs? Is it possible they could have protected college savers from the nightmare scenario they're now facing?

Use the Correct Building Blocks

Ask any gourmet chef and they'll tell you straight: It's difficult to get desirable results by using the wrong ingredients. This is an undying truth too, when it comes to managing your investments.

I believe ordinary people can achieve extraordinary results by simply using the right portfolio building blocks. ETFs are the right building blocks and the evidence speaks for itself.

Despite the worst stock market environment since the early 1930s, each of our six model ETF portfolios are currently beating major benchmarks like the S&P 500, MSCI EAFE (NYSEArca: EFA - News), and commodities (NYSEArca: GSG - News). Not that anyone cares, but our ETF portfolios also managed the same feat of market outperformance last year.

Our Generation Growth ETF portfolio has posted a year-to-date 3.50%* gain, our Capital Defense Portfolio a 2.31% gain, and our Sector Savvy ETF Portfolio a 1.93% gain, while the S&P has recorded a 20.33% loss! This type of real time performance (not back tested or hypothetical model) doesn't happen by accident. Some of our best portfolio picks have been gold (NYSEArca: GLD - News), and UltraShort Real Estate (NYSEArca: SRS - News). 

How's your portfolio performing?

What's Your Action Plan?

This is not the friendly stock market of a few years ago. And combining today's bear market with the wrong investment philosophy will inevitably lead to financial disaster. Millions of investors have lost more than the market and millions more will join them. What will you do?

If the stock market has trashed your portfolio, isn't it time you made the necessary changes to get your money back on track? Start today!

*All performance figures posted through March 10th market close.

Buzz up!