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
May 8, 2018
Last week, we introduced you to our weekly Investment Committee meetings. When we met for class on 4/27/18, we began our discussion on the subject of an "optimal portfolio." The centerpiece of investment management is portfolio construction. Alongside financial planning,...
May 4, 2018
Introduction People from all across the world look forward to Friday. Friday marks the end of a (usually long) work week and the start of what is supposed to be a relaxing weekend. At Rockbridge, we look forward to Friday’s,...
April 23, 2018
Stock Markets Returns from various stock market indices over several periods ending March 31, 2018 are shown to the right. Here are a few highlights: While not observed in these graphs, volatility seems to have come back, which is normally...
April 19, 2018
As another tax season comes to a close, we wanted to draw attention to a number of scams and schemes to defraud unsuspecting taxpayers. We think it is important that our clients be aware of how these scams work, and...
April 17, 2018
It’s common for investors to feel nervous when looking at investments by themselves. Are you saving enough? Are you saving in the right place? Are you holding the right mix of investments? Should you own individual stocks or funds? Are...