Your Portfolio Is Doing Better Than You Think
MAIN TAKEAWAY
U.S. stocks have come down from their recent high point, but that doesn’t mean your portfolio is performing poorly.
KEY TALKING POINTS
U.S. stocks are only down -1.8% so far this year.
Diversification is working.
Morningstar suggests that ESG-screened portfolios show higher returns with less risk.
Our largest portfolio holding has outperformed during the last 3 market declines.
U.S. STOCKS DEEP DIVE
U.S. stocks hit an all-time high on February 18th, 2025. Since then, it’s mostly been doom and gloom market news; continued inflation, tariff stand-offs, foreign AI competition, and employment hiring slow-downs.
As a result of this news, U.S. stocks have pulled back -6.1% since that high point. For a little more context, if we go back just a tad further to the beginning of the year, U.S. stocks are only down -1.8%.
Source: etfreplay.com, U.S. stocks represented by ticker: VTI, -1.8% YTD performance reported is total returns including dividends 12/31/2024 through 3/25/2025.
Most of us would agree that a -6.1% decline isn’t something to freak out about. As of today, we’re not even in MARKET CORRECTION territory.
Even better, we’re a long way off from a full-blown MARKET RECESSION, although the exact definition is murky.
“That’s great, but it feels like we’re on our way towards correction/recession territory”.
You could be right just as easily as you are wrong. Predicting which way the market winds will blow over a few days, weeks, months, quarters, and even a year is exceptionally difficult.
For the last month, I’ve been playing a hypothetical game with myself as a check against my emotions and bias. Every day, I wake up and decide if I believe the market should go up or down. Then, I check what’s happening to stocks both at the opening and closing.
What I’ve learned is that I’m not accurate with my predictions. About half the time, what I thought would happen based on the previous day’s news isn’t what actually happened.
While my experiment doesn’t constitute evidence for anything, it does serve as a reminder that reacting to news probably isn’t a recipe for investing success.
DIVERSIFICATION IS YOUR BUDDY
Diversification means owning different types of investments simultaneously.
While U.S. stocks are coming off two 20%+ return years in a row, it’s been frustrating watching our bonds and foreign stocks do practically nothing.
2025 is turning out to be a different story. The chart below shows the major asset classes returns year-to-date.
Source: etfreplay.com, International Stocks represented by ticker: VEA, Emerging Market Stocks represented by ticker: VWO, Bonds represented by ticker: AGG, U.S. stocks represented by ticker: VTI.
YTD performance reported is total returns including dividends 12/31/2024 through 3/25/2025.
What I’m seeing in most of my client’s portfolios is positive performance so far this year. The storyline is that diversification is doing its job quite well right now.
ESG SCREENING IS BENEFICIAL FOR IMPROVED RISK & RETURNS
Morningstar recently reported that an ESG-screened portfolio is better positioned to withstand market downturns compared to a conventional portfolio.
You can read more HERE.
To summarize, “the study shows that reducing ESG risk is beneficial for performance and risk mitigation”.
The chart below compares an ESG screened portfolio (Low ESG Risk) against a non ESG screened portfolio (High ESG Risk).
Source: https://www.morningstar.com/sustainable-investing/power-esg-higher-returns-lower-volatility, data examined from Dec 2014 - Apr 2023.
In addition to the ESG-screened portfolio providing better returns, it did so while exhibiting less risk.
Source: https://www.morningstar.com/sustainable-investing/power-esg-higher-returns-lower-volatility, data examined from Dec 2014 - Apr 2023.
When we really get into the weeds of the research, we learn that the U.S. tech sector doesn’t typically follow the same historical outperformance during downturns based on ESG factors.
This means that we shouldn’t expect our ESG-screened GROWTH stocks to do better than conventional growth stocks.
There are exceptions, such as the U.S. large cap growth fund we happen to use in our model portfolio (ticker: NULG).
Source: Morningstar, data as of 3/26/2025.
Notice the years 2018, 2022, as well as 2025 year to date. In each year when the index was negative for the year, the Nuveen ESG Large-Cap Growth ETF (ticker: NULG) outperformed its Morningstar best-fit index.
SUMMARY
Research in behavioral finance indicates that investors celebrate gains less than the extent to which they loathe losses.
This phenomenon is why the majority of financial planners recommend diversifying with non-U.S. stocks as well as bonds.
The catch-22 is that an investor doesn’t know when they’ll need diversification. Therefore, it should be applied at all times due to the unknown nature of future returns.
I get that recent stock market news has stoked investor fears. I’m not immune; I think it’s a weird time.
However, investors are reminded to keep their emotions in check. Your portfolio is probably in decent shape and likely doing better than you think.