What’s the ‘Right’ Benchmark?


Anastasia K. Wiese

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Anastasia K. Wiese


Senior Financial Advisor


In times of uncertainty, we tend to get restless. While sometimes it pays to strive for greener grass, as an investor, second-guessing a stable strategy can leave you in the weeds or drive you off course. Trading because of fear or greed fear tricks you into buying high (chasing popular trends) and selling low (fleeing misfortunes), while potentially incurring unnecessary taxes and transaction costs along the way.

Still, what do you do if it feels as if your investments have been underperforming? It helps to lead with this key question to decide if the impression is real or perceived:

How am I doing so far … compared to what?

Compared to the Stocks du Jour?
It’s easy to be dazzled by popular stocks or sectors that have been earning more than you and wonder whether you should get in on the action. You might get lucky and buy in ahead of the peaks, ride the surges while they last, and manage to jump out before the fads fade. Unfortunately, to succeed at this gambit, you must correctly—and repeatedly—decide when to get in, and when to get out … in markets where unpredictable hot hands can run anywhere from days to years.

Remember too, if you simply invest some of your money in the global stock market and sit tight, you’ll likely already own today’s hot holdings. You’ll also automatically hold some of the next big winners, before they surge (effectively buying low). Rather than comparing your investments to the latest sprinters, be the tortoise, not the hare. Get in, stay in, and focus on your own finish line. It’s the only one that matters.

Compared to “the Market”?
What if your investments seem to be underperforming not just the high-flyers, but the entire market? Maybe you’re seeing reports of “the market” returning several percentage points more than your investments have lately. What gives?

Remember, when a reporter, analyst, or others discuss market performance, they’re usually citing returns from the S&P 500 Index, the Dow Jones Industrial Average, or a similar proxy. These popular benchmarks often represent one asset class: U.S. large-cap stocks. As such, it’s highly unlikely your own portfolio will always be performing anything like this single source of expected returns.

Most investors instead prefer to balance their potential risks and rewards. For example, if your portfolio is a 50/50 mix of stocks and bonds, you should expect it to underperform an all-stock portfolio over time. Yet it also should deliver more dependable returns in the end, along with a relatively smoother ride along the way.

Even if you’re more heavily invested in stocks than bonds, a well-diversified stock portfolio will typically include multiple sources of risks and returns, such as U.S., international, and emerging market stocks; small- and large-cap stocks; value and growth stocks; and other underrepresented sources of expected return. Therefore, we advise against comparing your portfolio’s performance to “the market.” Usually, any variance simply means your well-structured, globally diversified portfolio is working as planned.

Compared to a Similarly Structured Portfolio?
At last, we reach a comparison that makes more sense. Your portfolio should be structured to reflect your financial goals and your ability to tolerate the risks involved in pursuing your desired level of long-term growth. Thus, a more appropriate comparison is made among the “building block” investments available to achieve this ideal.

Once you’ve built a portfolio that reflects your goals and risk tolerances, there are basically only two reasons your particular selections might underperform similar investments:

1. Poor fund management: Are your products or solutions accurately capturing the specific sources of return they’re meant to deliver?

2. Excessive costs: Are there lower-cost choices for achieving the same aim?

If your investments are accurately capturing the sources of return you’re seeking, you aren’t spending too much to make this happen, and you or your portfolio manager don’t have to make constant adjustments just to stay on course … any other comparisons become largely irrelevant for your investment journey.

Compared to My Financial Plan?
Bingo! This is the best benchmark you should be focused on. Your investment returns should be supporting the cash flow needs and goals you’ve identified in your financial plan. If your portfolio is not keeping pace with your goals, you should discuss with your advisor what changes can be made so that you can continue to live the life you envision. It is wise to proactively review your financial plan with your advisor every few years, but it can be very helpful to review your plan when you are feeling a bit uncertain about the future.

Admittedly, it can be easier said than done to avoid inappropriate performance comparisons, and identify appropriate solutions as described across shifting times and unfolding events. This is why your Grand Wealth Management team is here to support and guide you through the certain, and uncertain times. Please reach out to us as you need; we are here and happy to help!

The opinions expressed herein are those of Grand Wealth Management, LLC (“GWM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. GWM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. GWM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about GWM including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.