Measuring investment performance without a benchmark is like judging the results of a football game when you only know one team’s score. To get the real story, there must be a “measuring stick.” Obviously, in football you also need to know the opponent’s score. In the case of investment performance, results should be compared to an overall market with similar risk characteristics.
Here at Rockbridge, we structure clients’ portfolios to maximize the probability of meeting long-term financial goals. In doing so, we are committed to the idea that a portfolio’s asset allocation (mix of stocks and bonds) determines its risk profile. Asset allocation is also what explains a portfolio’s long-term results, and the best way to implement these portfolios is through the use of market-tracking funds/ETFs. The philosophy hasn’t changed, going back to the firm’s roots in 1991. The use of benchmarks helps us measure if portfolios are delivering on their long-term objectives.
The following indices are generally used to construct our portfolios’ benchmarks:
S&P 500/Russell 2000 – Domestic Stocks
MSCI EAFE – International Stocks
Barclays Government/Credit Index – Bonds
In our benchmark construction, the amount allocated to each of the above markets mimics the risk profile it is designed to measure. By design, many portfolios are diversified beyond the above benchmarks and include exposure to emerging markets and real estate. Over the past quarter, this exposure has not helped overall portfolio performance when compared to benchmark results. However, we continue to believe this diversification is appropriate and will bring incremental value in the future, as it has in the past.
Other articles filed under Investing
February 8, 2019
Over the summer, we had a client ask if there was a place to look for existing accounts or funds they or family members may have accumulated and forgotten about over the years. That sparked Julie’s memory of the New...
January 22, 2019
This recent market downturn has many investors drawing parallels to how they felt during the infamous 2008 financial crisis. The last 11 years have been a roller-coaster ride for investors. Right after seeing market highs in late 2007, investors experienced...
January 18, 2019
2018 was a woeful year for investing. All major stock market indexes were down, bonds enjoyed a year-end rally to finish flat, and commodities such as gold and oil fell. Seeing all asset classes drop in unison is unusual and...
January 14, 2019
I’ve been watching people drive all my life. I’ve been an individual investor and an investment advisor guiding clients for more than half of my adult life. I’m a curious soul and during a recent trip from Syracuse to Atlanta,...
January 11, 2019
Stock Markets December’s market reminds us that risk is real – even after the uptick at the end of the month, a global stock portfolio is down about 15% for the quarter and 12% for the year. Technology stocks (Amazon,...