Q – I am tired of seeing negative numbers on my quarterly performance reports. When I speak to my advisor, he assures me that I have done better than the “market” and that other people are worse off than me. Frankly, I do not care about “other people.” How can I figure out if my advisor is actually providing value? – John G., Willowdale, Ontario
A – That is a very good question. No two advisors are alike. Each has his or her own style. The best way to value your investment performance is to use a benchmark. A benchmark is simply an independent standard against which performance can be evaluated.
A good benchmark has five essential characteristics. 1) It’s unambiguous in that the components are clearly specified. 2) It is appropriate or representative in that it is consistent with your portfolio objectives. 3) It must be measurable and be established frequently. 4) It must be current and based on marketable securities. 5) And lastly, it must be investable in that it can be replicated and the components can be purchased separately.
A benchmark is important from a couple of perspectives. It provides a basis to compare how you are doing with a passive alternative, and it provides a gauge to measure the performance of the portfolio, not individual securities within the portfolio.
Some of the most widely watched benchmarks for Canadian investors include the Scotia Capital 91-Day T-bill Return Index (cash), the DEX Bond Universe Total Return (fixed income), the S&P TSX Composite Total Return Index (Canadian equities), the S&P 500 Composite Total Return Index in Canadian dollars (US equities), and the MSCI EAFE Total Return Index in Canadian dollars (international equities).
When measuring performance, be sure to compare apples to apples for a fair comparison. In other words, match your fixed income against the fixed income benchmark, Canadian equities against the Canadian equity benchmark, and so forth. – R.T.
Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. She appears regularly as a financial planning expert on CityNews Channel. Phone 416-828-7159 or email today to firstname.lastname@example.org for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.
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