I had earlier produced a post on the importance of benchmarks. This is important in the kind of markets we are experiencing now. I have just finished watching a video where the owner of the firm bragged that since the 2007 peak the clients' performance has been down but it has beat the performance of the S&P 500. Guess what? Most of the clients are in models that are 70% stocks and 30% bonds. The question is not whether they beat the S&P 500. The question is did they beat a passive portfolio of 70% stocks and 30% bonds. The clients should ask: why are you showing me results against an all stock index? Secondly, the index isn't very well diversified. It doesn't hold small cap for example.
Hopefully this helps clients ask the right questions.
I saw another video of a manager who invests in multiple asset classes. This manager argued that, because of their investment style, they shouldn't be compared to a benchmark.
Is it no wonder that so many just throw up their hands and do-it-themselves?
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