Understanding the Disconnect Between Stock Market Highs and 401(k) Balances: Insights from Wes Johnson, CFP®
Wes Johnson, a Certified Financial Planner® Practitioner with ACT, recently joined Mike Switzer on the South Carolina Business Review to address a common concern: why are stock market indices hitting new highs while 401(k) balances aren’t showing the same growth?
Stock Market Indices vs. Individual Portfolios
Wes Johnson explained that not all stock market indices are experiencing new highs. While the S&P 500 and the Dow Jones Industrial Average have garnered significant attention for reaching new highs, this isn’t the whole picture. Small-cap and mid-cap stocks, for instance, haven’t fully recovered from the 2022 pullback. Consequently, investors with diversified portfolios—comprising large-cap stocks, small-cap stocks, and bonds—may not see the same performance as the S&P 500.
Diversification and Its Impact
Johnson emphasized the importance of diversification in investment portfolios. He noted that even investors with a long-time horizon and high tolerance for fluctuations are unlikely to have portfolios solely composed of S&P 500 stocks. Diversified portfolios typically include various asset classes to manage risk better.
The discrepancy in returns becomes evident when comparing different market segments. While the S&P 500 might be up by 20%, small-cap stocks could be up by only 2%, and the Dow Jones Industrial Average may be up by 6-7%. This disparity is primarily due to the S&P 500’s significant exposure to a few large tech stocks driving much of its recent performance.
The Influence of Tech Stocks
Johnson highlighted that the S&P 500’s recent performance is heavily influenced by seven major tech stocks, each valued in the trillion-dollar range. If these stocks were removed from the index, the S&P 500 would not show nearly as strong a return. For a more balanced view, he suggested looking at the equal-weight S&P 500 index, where each company has an equal share. This index is up only 5-6% for the year, demonstrating a more modest performance compared to the market-cap-weighted S&P 500.
Media and Market Perception
The media often focuses on sensational headlines, leading investors to question why their portfolios don’t match the market highs they hear about. Johnson noted this can create unrealistic expectations and confusion. Despite the strong performance of the S&P 500 over the past decade, it’s crucial to remember that other periods, such as 2000-2010, saw the S&P 500 underperform compared to international and emerging market stocks.
Historical Context and Future Expectations
Johnson provided historical context to illustrate the cyclical nature of different market segments. From 2000 to 2010, the S&P 500 was one of the worst-performing indices, while international and emerging markets outperformed. In recent years, tech stocks have driven the S&P 500’s success, but this trend isn’t guaranteed to continue indefinitely.
He addressed the misconception that the tech sector is overhyped, comparing today’s tech giants to those of the late 1990s. Unlike the dot-com bubble, where many companies lacked profitability and reliable revenue streams, today’s major tech companies like Facebook, Amazon, Apple, Microsoft, and Google are deeply integrated into daily life and generate substantial, dependable revenue.
Johnson’s insights highlight the importance of understanding the broader context of stock market performance and the role of diversification in investment portfolios. While the S&P 500’s recent highs may capture headlines, investors in Mount Pleasant and beyond should recognize that a balanced portfolio tailored to individual goals and risk tolerance is crucial for long-term financial success. By staying informed and maintaining a diversified investment strategy, investors can navigate market fluctuations and work towards their financial objectives with confidence.
To hear the full interview, visit
Wes Johnson’s expertise underscores the value of working with a Certified Financial Planner® Practitioner who prioritizes fiduciary responsibility and fee-only advising. To learn more about Wes, visit