My Investments Lagged in 2021 – 3 Reasons I’m Still Happy

If somebody tells you they missed out on hundreds of thousands of dollars, but they’re still happy, would you believe them?

Would you dismiss it as “sour grapes,” or would you be curious to know why, and what it could mean for how you should look at your own finances?

If the latter, read on…

First, Some Context

About a year ago I reported here that my portfolio had a spectacular 2020. In a year when the S&P 500 returned a far-higher-than-average 18.4%, my returns were nearly 40%.

I then said it was time for me to shift strategies, taking some chips off the table.

Now, it seems the market is mocking me: In 2021, rather than crashing, the S&P 500 returned an even-richer 28.7%, while my portfolio lagged at 12.7%.

Had I moved everything into an S&P 500 index fund, I’d be hundreds of thousands richer.

While I was worried the market was getting overheated, my colleague Ben Le Fort points out that the market performs better than average, not worse, when it keeps breaking records.

You know what?

I don’t care, and here’s why…

3 Reasons I’m Happy Despite Missing Out on a Ton of Money

My longtime allocation has always been 90-95% in stocks, with only 5-10% in bonds and cash. Even that was mostly because I invest through mutual funds, and the law requires them to hold some cash to cover redemption requests.

As I argued elsewhere, that allocation made sense for me as long as I was more than a few years away from being able to retire, given that I don’t panic-sell when the market crashes.

The first reason I’m happy is that now that I’m knocking on the door of my 60s and plan to downshift in a few years, capital preservation overrides maximizing growth. That’s why I moved to a 70/30 allocation.

For me, that’s defensive (though conventional advice would tell me to move to 60/40 or even 50/50). And while the S&P 500 beat the pants off my current portfolio in 2021, had I stuck with my 2020 investments, I’d be 16.3% behind where I am today.

That’s some pretty good capital preservation, no?

My second reason is that counting 2020 and 2021, I’m still 3.5% ahead of the S&P 500. And when not if the crash comes, I’ll be able to redeploy my large cash position back into stocks at bargain prices and ride the recovery to a nice extra return.

When will the crash come, you ask?

If anybody tells you they know, they’re lying to you (or to themselves).

Personally, I have no idea. However, as of this writing stocks are off nearly 10% year-to-date, which may be the start of that fall… or not. Only time will tell.

The third reason I’m happy is that my plan assumes a 7% average annual return. Any year I make more, especially with a defensive portfolio, is gravy. After all, my goal isn’t to make the most money of any investor. It’s just to reach my own financial goals.

The Bottom Line

Missing out on a ton of money is a pretty good reason for regret.

However, hindsight is always 20-20.

Trying to time the market, or making high-risk bets with a large chunk of your nest egg (e.g., day-trading, crypto, meme stocks, etc.) is almost never a good idea. And if you allow regret to inform your future investments, you’re more likely than not to regret it even more.

That’s why I look at things from a different perspective, and am very happy with my portfolio, despite missing out on so much money.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.