How you doin’?

How did your portfolio perform last year?  If you’re like most investors you’re probably smiling.  After all 2013 was a banner year for the markets.  So you think you had a good year last year?  Well, let me ask you this – compared to what?

Just knowing what your return is doesn’t give you a true picture of how you did.  You may have had a return of 15% last year but could you have done better?  The market was up 30% or so. Does that mean that you did poorly?  What about the amount of risk you are exposed to get those returns?  Is it what you thought or even in line with your risk tolerance?

Looking at portfolio returns by themselves can never give a true picture of performance.  For this we need something to compare or keep score against.  The way we keep score in the world of investments is to compare our returns to a benchmark.  The problem is that finding an appropriate benchmark is not as easy as it may appear.   Most individual investors and many advisors simply compare all portfolios to a market index such as the S&P 500.  While this may be simple and easy, it’s misleading and wrong.

Proper benchmarking should give an investor a true picture of the performance of their portfolio performance from four perspectives:

  1. How the portfolio is doing compared to a representative slice of the market
  2. If the portfolio is invested in mutual funds or with a manager, how your fund/manager is performing versus its peer group.
  3. The portfolio’s risk adjusted return.
  4. The portfolio’s performance versus your financial plan

We’ll touch on each of these in future posts.

A benchmark needs to be a representation of the portfolio you are comparing.  Any index, regardless of how broadly based it may be, still only looks at a narrow segment of the market.  Most individual investors hold a portfolio that should be somewhat diversified, not only into stocks and bonds but also by geography and market capitalization.  Comparing a diversified portfolio to an index such as the S&P 500 would be like comparing a Yugo to a Corvette.  Yea, they’re both cars but…..

Financial success requires a delicate balance between staying engaged and letting things flow.  Proper benchmarking in conjunction with a sound financial plan will, among other things, help ensure that financial decisions are made for the right reasons and at the appropriate times.



David J. Seibel is founder and Managing Partner of AGS Aurora Financial Services LLC (, an independent financial advisory firm in Matawan, New Jersey. You may contact him by email at

Investment Advisory Services offered through Global Financial Private Capital, LLC a SEC Registered Investment Advisor