Performance, like beauty, is in the eye of the beholder. Both are very difficult to define and do not lend themselves to all inclusive metrics. Think about it. The market is up, your portfolio is up, how is it doing? Compared to what? The Dow Jones Industrials, the S&P 500, small caps, mid caps, EAFE, or something else?
Investing is not a competition. Investing should be a well thought out marshalling and management of your available resources in pursuit of an attainable financial objective. This is not a “one size fits all” activity. Objectives, resources and the ability to tolerate risk vary.
Nevertheless, it is important to be confident that your portfolio is keeping pace with the general market and is on track to meet your goals. To that end, it might be useful to compare your results with a broad metric which may prove to be useful as a benchmark for a diversified equity portfolio.
We know that the stock market fluctuates, sometimes quite significantly. A successful outcome is more likely if you and your advisor(s) carefully assess your resources, your objectives and your willingness to accept risk. No matter what your strategy, you still have to be able to sleep at night. Once you have determined where you want to go and how to get there, periodic reviews of your progress, versus your objectives, during both rising and falling equity markets, will probably lead to a more satisfactory long term outcome and greater peace of mind than frequent short term comparisons with some arbitrary metric.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA