Balanced investor’s benchmark

Q – Like many investors, I am yet another person disappointed with my investment returns. My advisor tells me I have done well against the benchmark. What benchmark should I be looking at? I am a balanced-risk investor. Thank you. – Chris S., Vancouver, BC

A – One of the most important things to look at when comparing your portfolio with a benchmark is to make sure that the benchmark is made up of the same asset mix as your portfolio. In other words, if you have, say, 50% in Canadian bonds and 50% in Canadian equity, you would use a weighted fixed-income/equity benchmark to make your comparison.

One of the most commonly used benchmarks for fixed income in Canada is the DEX Universe Bond Index or the ETF that tracks it, the iShares DEX Universe Bond Index (TSX: XBB). You would use this benchmark for the bond portion of your portfolio. One of the most widely used Canadian equity indexes is the S&P/TSX Composite Index or the ETF that tracks it, the iShares S&P/TSX Index (TSX: XIU). You would compare the 50% Canadian equity holding against this benchmark.

It is the role of an active portfolio manager to beat the benchmark index more often then they miss it. If your returns consistently do not match or exceed the benchmark, then you are in effect paying a manager for poor performance. The argument is that in the case of persistent underperformance, you could just buy the benchmark index ETFs yourself and not pay the manager at all.

However, before jumping the gun, it’s important to do your research, comparing your portfolio performance against the benchmark over various time periods. That way you’ll have a clearer picture of your true performance. If you still have concerns, then speak to your advisor. – Robyn

Balanced investor’s benchmark was last modified: August 24th, 2015 by robyn