What this article covers
In 2021 the S&P 500 returned 28.7% while Opher Ganel’s portfolio returned 12.7%, a gap worth hundreds of thousands of dollars. He explains why he is still happy with his decision to shift from 90-95% stocks to a defensive 70/30 allocation as retirement nears, and why measuring results against your own plan beats measuring them against the market.
Key Takeaways
Shifting to a more defensive allocation near retirement can mean lagging a hot market, and that can be fine
Opher moved from his longtime 90-95% stock allocation to 70/30 as he approached his 60s, putting capital preservation ahead of maximizing growth. His portfolio returned 12.7% in 2021 versus 28.7% for the S&P 500, but he calculates that his old 2020 investments would have left him 16.3% behind where he is now.
Judge performance over more than one year, and keep cash ready for the next downturn
Counting 2020 (nearly 40% for him vs. 18.4% for the S&P 500) and 2021 together, Opher was still 3.5% ahead of the index. His large cash position lets him buy stocks at bargain prices when a crash comes, though he stresses that nobody knows when that will be.
Measure your investments against your own financial plan, not against the market
Opher’s plan assumes a 7% average annual return, so any year above that is a bonus, especially with a defensive portfolio. He argues that market timing, high-risk bets such as day-trading, crypto or meme stocks, and letting regret drive future investments are more likely to cause more regret than less.
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…
How My Portfolio Did in 2020 and 2021 vs. the S&P 500
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: Don’t Let Hindsight and Regret Drive Your Investing
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.
Frequently Asked Questions
Is it bad if my portfolio underperforms the S&P 500?
Not necessarily. Opher Ganel’s portfolio returned 12.7% in 2021 while the S&P 500 returned 28.7%, but that was the result of a deliberate shift to a more defensive allocation as he nears retirement. Over 2020 and 2021 combined he was still 3.5% ahead of the index, and his plan only needs a 7% average annual return.
Should you reduce stock exposure as you get closer to retirement?
Opher argues that a 90-95% stock allocation made sense while he was more than a few years from being able to retire, given that he doesn’t panic-sell in crashes. As he approached his 60s, capital preservation became more important than maximizing growth, so he moved to 70/30. He notes that conventional advice would suggest 60/40 or even 50/50 at that stage.
Can anyone predict when the next stock market crash will happen?
No. Opher’s view is that anyone who claims to know when the crash will come is lying to you or to themselves. He keeps a large cash position so he can buy stocks at bargain prices whenever a downturn does arrive.
Should you change your investments because you regret missing out on gains?
Opher says hindsight is always 20-20, and letting regret inform your future investments makes you more likely to regret them even more. He also warns that trying to time the market or making high-risk bets with a large chunk of your nest egg is almost never a good idea.
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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.
About the author
Contributing Writer, Wealthtender
My career has taken some unexpected turns, from earning a PhD in experimental high-energy physics, to conducting cosmic-ray research in Antarctica, to supporting NASA projects and programs, to running my own consulting business. I also run several other small businesses and help my wife run her Marriage and Family Therapy practice.
Those experiences taught me to question assumptions, think critically, and recognize that real-world decisions of any significance rarely have simple answers that apply to everyone. Today, I bring that perspective to writing about personal finance. Drawing on my analytical background, business experience, and research, I explore financial decisions, challenge conventional wisdom, and help readers understand the tradeoffs that can affect their financial well-being. To complement my own research and experience, I also weave insights from financial professionals into my articles, drawing on their expertise and real-world experience helping clients navigate financial decisions and challenges.
At medium.com/@opher-ganel, you can read more of my articles and subscribe to receive email notifications when new ones come out.