In this article, we’ll discuss how using a benchmark can help in measuring investment performance.
The other day I met with a prospect who said, “My IRA/mutual fund/brokerage account is doing well…I think! Wait, how can I tell if my investments are doing well?”
How do you “know” your investments are doing well? One way to “know” how your investments are doing is to establish a benchmark, and measure performance of your investments to that benchmark.
What is a benchmark? According to investopedia.com (link opens in new tab), “A benchmark is a standard against which the performance of a security, mutual fund or investment manager can be measured.”
One example of a benchmark is the US stock market overall or the S&P 500, scaled for your risk level. If your investments are performing the same as, or better than, that benchmark, then you might “know” your investments are doing well. A challenge, though, is knowing what benchmark to select for yourself. For example, if you’re a conservative investor, leery of account balances decreasing and preferring not to take on much risk, is it realistic to expect that you should get the same returns as the US Market overall? Probably not.
This can be an area where a professional investment manager can help. Here’s a link to information on how Tree Fort Financial compares our returns to a benchmark, the Dow Jones US Total Market ETF (symbol IYY), and scaled for risk.
If you have questions about this process or would like to learn more, reach out. I’d be happy to chat!