When balance is not balance but a huge bet against the S&P 500.

“Balanced" can refer to any system or approach that maintains equilibrium, ensuring no single element dominates or creates disproportionate risk. This principle is applied in various fields to achieve stability and harmony.

EXCEPT IN INVESTING 😉

A young investment analyst is tasked with creating a large-cap stock portfolio, seeking to balance growth and value stocks. His style box analysis appears balanced:

Job well done! Value and growth look to be balanced. But wait just a minute…Here is the same style box but for the S&P 500:

What?

Isn't the S&P 500 a fully balanced portfolio of large-cap stocks? Not exactly. An exception to balance…By choosing to balance growth and value stocks in your portfolio, currently you are actually underweighting growth stocks relative to the S&P 500, leading to significant underperformance over the past decade (and then some).

Most investors get the concept of diversification or balance within their portfolio. Many actually strive for it. But balance doesn’t necessarily only come from within. And therein lies a major rub of investing.

Internal or absolute balance could be significantly out of balance RELATIVE to something else.

This year has been no exception. Look at this chart below. When the line is going down, growth is outperforming value and as a consequence, and the young analysts internally balanced growth/value portfolio is underperforming the growth dominated “balanced” S&P 500.

So before simply asking for balanced portfolios, define your terms.

Voltaire once said, "If you wish to converse with me, define your terms."[i]

At Members’ Wealth we ask a lot of questions of our investors to help them define their terms. One balanced portfolio to you may not be a balanced portfolio to me. Success requires communication between investors and their advisors. When is the last time you defined your terms?

[i] Voltaire, the 18th-century French Enlightenment writer, historian, and philosopher, is often credited with the quote, "If you wish to converse with me, define your terms." This statement underscores the importance of clear communication and mutual understanding in any discussion. By insisting on the definition of terms, Voltaire emphasized the necessity of precise language to avoid misunderstandings and ambiguities. This approach is fundamental in debates and intellectual discourse, where clarity and specificity are essential for productive and meaningful exchanges.

The information published herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions. Estimates of future performance are based on assumptions that may not be realized. Past performance is not necessarily indicative of future returns or results. No representation is made as to the accuracy, completeness or timeliness of the information in this material since certain information herein is based on or derived from information provided by independent third-party sources. There is no duty to update this information. Illustrations provided are for presentation purposes only. Actual investment experience will vary with stock selection and changing market conditions. Investment advisory services offered through Member's Wealth, LLC, a registered investment advisor. The Dow Jones Industrial Average (DJIA) is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The S&P 500 index is designed to be a broad based unmanaged leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe or representative of the equity market in general. The National Association of Securities Dealers Automated Quotations (NASDAQ) is an American stock market that handles electronic securities trading around the world. The Russell 2000 index is an index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. Visit www.russell.com/indexes/ for more information regarding Russell indices. The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Bloomberg US Aggregate Bond Index, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

About the Author – Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

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