How Are Your Investments Doing? No, Really?

If you’re like most investors you’re happy to open your account statement and see that your investments have appreciated in value since the last statement. When the market gets rough you understand that stocks lose money sometimes. But how much your investments appreciate, or decline, is critical over the long term. The only way to understand how you’re really doing is to benchmark your performance against a pre-determined benchmark.

We benchmark most other things we shop for. When we buy a house we compare the cost per square foot of one house to another. A car from one manufacturer will be compared to a similar model from other manufacturers. Most of us (me included) will even compare the price of small items, like cheese & cereal, between different brands. But when it comes to investments few of us compare how we’ve done to how we might have done if we (or our advisor) had made a different choice.

If you have an advisor or broker, then they should be able to benchmark your performance for you, just be sure you agree on the benchmark in advance. Every investment mix can be benchmarked. If you go it alone, then here’s the four steps to benchmarking your performance.

  1. Understand your asset allocation (how much in stocks, bonds, etc.).
    1. You should know your asset allocation, as this is an important first step in the investing process.
  2. Find a low cost mutual fund, or funds, that invests with a similar asset allocation.
    1. Most Vanguard funds are low cost, and their “Target Date” funds hold a variety of asset types in one fund.
  3. At the end of the year compute the return of your account. Then compute the return of your similar mutual fund(s) benchmark.
    1. You can find return information, as well as historical prices, at .
  4. Compare one against the other.

You shouldn’t expect to beat your benchmark each and every year. But if your trailing your benchmark year after year then you should ask yourself if investing in the benchmark would be better!