If you keep up with financial news, you’ve probably noticed that the only constant about the stock market is that it’s never quite the same. All those ups and downs impact your investment portfolio. But chances are your returns don’t exactly match the market numbers you’ve heard about on the news.
Huh? Why not?
An investment portfolio and “the market” aren’t actually synonyms. For starters, there are about 2,800 different stocks traded on the New York Stock Exchange alone—and that’s a lot of ground to cover in one portfolio.
More specifically, the overall U.S. market is often described based on the performance of indexes like the S&P 500, which tracks 500 U.S. stocks, and the Dow Jones industrial average, which tracks 30 large U.S. stocks, like Apple, Coca-Cola and Johnson & Johnson.
So unless your portfolio solely consists of, say, just one S&P 500 index fund—an investment that aims only to mimic the performance of the S&P 500 index—you’re likely to see different returns than the market’s.
Why wouldn’t my portfolio consist of just one S&P 500 fund?
Because, diversification. Acorns portfolios contain ETFs that provide you exposure to thousands of U.S. and international stocks, and may include bond ETFs, as well. This way, when some investments in your portfolio are down, others are likely to be up. Though all investing involves some level of risk, diversification helps balance out large market swings so your portfolio can continue steadily growing over time.
So don’t get caught up in the latest, breaking financial news—and instead, stay focused on how a well-diversified portfolio of stocks and bonds can help you achieve your long-term goals. And, remember that, though stock prices go up and down every day, historically they’ve always trended up.
November 29, 2018