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Is Your Portfolio Underperforming Its Benchmark?

Couple meeting with financial planner.

A benchmark is a standard against which something is compared. The financial industry uses benchmarks to measure the performance of various investment instruments.

Unfortunately, most investors incorrectly believe that they are doing better than they think. For example, if your portfolio had a return in a given year of 10% you might believe that is good. But is it? For illustrative purposes let’s say you were invested 100% in the US in large companies found on the S&P 500. And what if the S&P 500 was up 15% at the same time. In that case clearly the 10% return was not good. Alternatively, let’s say your portfolio was down 5%. You might think that’s not very good, but if the index was down 15% that is good news for you. 

You cannot control the indexes/benchmarks, but you can control who you hire to manage your money. If that person or firm has the expertise and a proven track record of outperformance of the benchmarks, you will have less risk and enjoy much better returns. That’s a pretty good formula to help you sleep at night. 

Annual reviews are a very important part of financial planning. Although there are many components of a financial planning review, one of the most important aspects is reviewing of your portfolio performance. This is when the benchmarking comparison plays a very significant part in determining if you are on track to achieve financial success. If such a comparison is not done by your current Financial Advisor/Planner, make sure to ask for it. This comparison will give you a clear picture of your particular portfolio performance compared to the industry measurements.  

Let us show you how your investment results compare to the appropriate index so you will know if you are getting value for the fees you pay. We would be glad to provide you with the info so that you will know exactly where you stand.

Posted By: Halton Wealth Management

Posted on May 15, 2023.
Posted in Blog

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