How Are Your Investments Performing?

You know the mpg for each of your cars. You know how much you pay in property taxes. You know your cholesterol level and you even know your kids' SAT scores. Do you know your investment performance?

If you tell me your kids are going to an IVY league school, I'm going to ask how they did on their SATs. If you tell me you're eating right and exercising, I'm going to ask about your cholesterol level. If you tell me your investment advisor is doing a good job, I'm going to ask about your performance.

And, if you are typical, I'm going to get a blank look. Often this is followed by some mumbling about accounts at different brokers and the assurance that the numbers are somewhere on the website. In the end. there is a sheepish admittance that, for many of you, you just don't know.

Let me be blunt here. You need to know. Investment performance is a determining factor for many in whether they will meet their retirement goals. Furthermore, it is not difficult to get at and to actually understand. Brokers should make it available. but many don't. There's a reason why, but DIY Investor doesn't want to get into that here. It will be more instructive to show how easily it can be obtained - at least at Schwab.

Full disclosure:  I am not affiliated with Schwab. I have clients that use different brokers. If asked for a recommendation, I will recommend Schwab; and one reason is the feature described here.

One of the nice features of the Schwab performance module is that it enables clients to combine accounts and easily get up-to-date performance. This performance is compared to a benchmark, derived from the model chosen by the client. For example, out of seven models, one of my clients (who has recently retired) and I selected Schwab's "Moderate Conservative" model shown here. CLICK TO ENLARGE

Source: Charles Schwab

Note the "Asset Class" and allocation percentages. This determines the all-important benchmark. To assess how investments are performing, you need a benchmark to compare against. In looking at the allocation percentages, note that cash and fixed income add up to 60%. This makes it a viable model for the recently retired. Note, also, that the worst year for this allocation over the period 1970 - 2009 was -12.5%. The retiree choosing this model has to be able to withstand a downturn of this magnitude.

The performance module is available online and is accessible by pushing a couple of buttons. It is kept up-to-date so that the client can always find performance as of the previous day relative to the model benchmark. Here is the performance of a client using the "Moderate Conservative" model:

Source: Charles Schwab

CLICK TO ENLARGE The performance shown combines the three accounts at Schwab:  a brokerage account, a traditional IRA, and a Roth IRA. The lower right-hand corner shows returns since inception. As you can see, the portfolio has returned 9.14% and the benchmark 8.74%.

For this client, it is important that performance be 7% and higher - this is what is assumed in his/her financial plan. Also, the fact that the portfolio is outperforming the benchmark is unusual; and it is because the portfolio is slightly overweighted in higher dividend stocks and has a greater concentration in shorter-term bonds (because yields are so low) than the benchmark. In fact, over the longer term, it should be about .20 under the benchmark, reflecting the cost of the exchange traded funds.

The information here is presented for educational purposes. It should not be considered a recommendation. Individuals should consult with an advisor or do their own research prior to investing. Past investment results are not indicative of future results.