Ask Matt: Why is my friend’s stock portfolio beating mine?

Q: Why is my friend’s portfolio beating mine?

A: It’s hard to complain when you’re making money in the stock market, unless your friend or neighbor is making more.

If you’re getting beat, it’s probably because you’re not taking as much risk. That’s not necessarily a bad thing.

Stock market returns are connected with the amount of risk you’re taking. The broad stock market is up 10.7% this year. If your friends are up more than that, it’s likely they own asset classes that are riskier than the large U.S. stocks that populate the Standard & Poor’s 500.

One way to turbocharge returns with risk during bull markets is by owning shares of small companies. The Russell 2000 index is loaded with thousands of small companies. They have less cash, riskier business models and less diversification than giants in the S&P 500.

Extra risk pays off in bull markets: The Russell 2000 is up 19.4% this year. Safer portfolios tend to hold more bonds. During bear markets, bonds tend to be stable. During bulls, though, they can lag. The Barclays U.S. Aggregate Bond index is down 0.5% this year.

If your portfolio is safer than your friends’, that explains the underperformance. When the bull market stops, you might be glad you’re playing it safer.

Paste BN markets reporter Matt Krantz answers a different reader question twice a week. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.