Performance Benchmarks For Your Portfolio

It is important to include performance benchmarks in your financial portfolio so you can achieve your goals. On this episode of A Wiser Retirement Podcast, Casey Smith, Matthews Barnett, CFP®, ChFC®, and Brad Lyons, CFP® talk about how to include performance benchmarks in your portfolio. They go over measuring risk in your portfolio, the importance of being an investor, how to begin choosing indexes for a benchmark portfolio, and offer advice on how to set yourself up for success in retirement.

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Performance Benchmarks for Your Portfolio

To begin implementing performance benchmarks, it is important to compare your portfolio to other relevant portfolios. This will help you see your progress as well as areas of improvement. There are two strategies to use when comparing your portfolio. The first strategy is picking a benchmark of an index that is relevant to your portfolio. The second strategy is determining the required rate of return you need in your portfolio, or what you need to achieve your set goals. This approach is more long-term and allows you the time to research the market’s historical performance.

Measuring Risk

Measuring risk can help to mitigate it as much as possible. Two ways to do this are through measuring volatility and sharpe ratio. Measuring volatility allows you to see how much the market is fluctuating. Measuring the sharpe ratio allows you to evaluate if the additional risk is worth it. Ask yourself, “is the risk paying off?” If so, it may be worthwhile to keep it in your portfolio.

Choosing Indexes for a Benchmark Portfolio

As you are beginning to form a benchmark portfolio, it is important to choose indexes that are relevant to your portfolio. Two indexes that can assist you in developing your benchmark are the Vanguard Total World Stock Index Fund ETF (VT) and the Vanguard Total Bond Market Index Fund ETF (BND). These two indexes define the investable universe and include all the equities in the world that are publicly traded that you as an investor can invest in. Because of how broad these indexes are, they can be useful when beginning to create a benchmark portfolio.

Be an Investor, Not a Speculator

If you are an investor, it’s important to remember risk and reward go hand in hand. The market fluctuates day-to-day, and you never know how the market is going to act. This amount of risk affirms why it is important to be an investor and not a speculator. Being a speculator takes a very advanced skill set to see a high return. To substantiate this claim, only 6% of professional fund managers have beat the S&P 500 over the past twenty years. That is a very low percentage, and active managers have trouble sustaining this luck more than once. This goes to show it is more about luck than having a certain skillset, and this small percentage of investors are more likely be rewarded only in the short-term, if at all.

Advice for an Investor

A big part of being an investor is monitoring and understanding what’s happening in the market. Prepare for the future by thinking about possible roadblocks. Keep in mind, as an investor sometimes the best thing to do is nothing. Double check your allocations for diversification, invest more when things are down and keep your emotions out of it.

Setting Yourself up for Success (Protecting Your Portfolio)

Performance benchmarks don’t just gauge performance, they can also help you manage it through periods of uncertainty. With that said, your portfolio should not be the first place to go in times of crisis and uncertainty. Prior to retirement, set yourself up for success by doing these three things: eliminate any debt, have emergency reserves of cash set aside, and save two years’ worth of living expenses inside your portfolio. This is important because if the market were to crash, you have savings built up, have cash reserves inside your portfolio and you won’t have debt payments to worry about. Cash has the ability to provide long-term stability and a less stressful start to retirement and market uncertainty.

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0:00 Intro

3:35 Implementing Performance Benchmarks

6:45 Measuring Risk

10:35 Choosing Indexes for a Benchmark Portfolio

17:00 Be an Investor, Not a Speculator

22:00 Advice for an Investor

26:28 or 31:05 Setting Yourself up for Success


Learn more about Casey Smith and connect with him on Twitter.

Learn more about Brad Lyons.

Learn more about Matthews Barnett.


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Learn more about A Wiser Retirement podcast and access previous episodes.


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