Benchmarks You Can Invest In


Benchmarks are fundamental measuring tools that gauge the relative performance of securities, investment managers and portfolios. They help answer the question “How are my investments performing?” Yet despite their importance, they often have inherent shortcomings that can make them less than optimal for evaluating performance.

In our view, the most significant flaw is when indexes are used as benchmarks to compare performance, rather than the investable funds that are designed to replicate them. It may seem like a distinction without a difference but it is not. For reasons addressed in this paper, an index’s performance often differs significantly from that of an investable index fund that attempts to achieve the same results.

After conducting considerable research on alternative benchmarks, we have decided to change our performance reports to allow our clients to more accurately assess the progress of their portfolios. We have transitioned to investable benchmarks. This move will provide better insight into performance.

A benchmark, of course, is just one measure of the investing experience with an advisor. Besides providing an opportunity to beat a benchmark in a given asset category, we tailor portfolios to a client’s individual situation and collaborate with outside advisors to integrate our investment recommendations with their tax and estate planning strategies. But having investable benchmarks strengthens the foundation for that experience and gives our clients more clarity for measuring the value of the actively managed component of their portfolio.