Build your own benchmark

Traditional benchmarks have a purpose, but they are impersonal and fail to reflect the messy realities of investing.

Ben Johnson, CFA 4 March, 2016 | 6:00PM

How do you track your progress toward your financial goals? How do you assess your abilities as the manager of your personal portfolio? How do you measure the value of a trusted advisor? Do you have a benchmark? If your answer is no, then you may want to consider building one.

Benchmarks play a central role in performance evaluation. They serve a "you are here"-type function that allows us to assess the state of the markets as well as the relative performance of the various "helpers" (to borrow a term from Warren Buffett) that we've hired to aid us in investing our precious capital with an eye toward meeting our financial goals.

On a stand-alone basis, any given financial index has limited utility. The S&P/TSX Composite Index can tell us a lot about how blue-chip Canadian equities are performing or how an actively managed large-cap stock fund is faring relative to the market at large, but it gives little insight into the performance of a globally diversified portfolio of stocks, bonds and other asset classes, and less still into how this portfolio is progressing toward meeting one's goals. In isolation, an index is inherently impersonal and sterile.

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About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.