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
October 22, 2018
Stock Markets For the last quarter, stocks are up except for Emerging Markets, which were close to flat. Domestic stocks are seemingly shrugging off the uncertainties of increasing interest rates, trade wars and tariffs. Year to date, an Emerging Market...
October 16, 2018
Interest rates are rising, and yet you may not be earning much on your cash. As financial markets finally begin to reflect a recovery from the crisis of 2008-09, the brokerage industry is changing the way they handle customers’ cash,...
October 12, 2018
We had several clients this year reach out to ask how bonds were performing in their portfolios. These are great questions, so we created a few items to address what you see in your statements. Some people notice they have...
October 9, 2018
“Give, but give until it hurts.” - Mother Teresa - I don’t think Mother Teresa paid much attention to the tax code, but her quote is unusually prescient for 2018 taxpayers. The changes have made it unlikely to get...
September 20, 2018
How does/and how much does your advisor get paid? Fees matter. It is important to know how much you are paying and the value you receive for that payment. If you're paying 1% or more for only investment management with no...