How Are Your Investments Doing?

I have to admit that I am constantly surprised to learn that investors many times have no idea of their investment performance.  If they have an advisor, they are typically at the whim of the advisor in receiving investment performance.  More times than not, I find returns are reported absent any meaningful benchmark. This is like telling an alien that your automobile gets 30 miles to the gallon.  Is that good?  It would have no way of making an assessment.

I point out the fact that up-to-date investment performance, relative to an appropriate benchmark, is at the fingertips of Schwab clients.  Performance is available for individual accounts as well as for combined accounts.  For example, if you have a brokerage account, an IRA, and a Roth IRA, you can get performance for each account as well as all three accounts combined.

When I point this out to potential clients, they sometimes respond that they don't follow their performance by frequently checking on it.  I agree - it isn't a good idea to check on it constantly.  But isn't it good to know it is there when you need it?

Here is performance for Schwab's "Moderate" portfolio.  Note the well-specified benchmark.  The returns are for the last three months, year-to-date, one year, etc.  They are through the close of the previous day!  The return on the right-hand-side, 2.40% annualized,  is since inception of the account, 4/15/2011.

Source: Schwab

CLICK TO ENLARGE

Source: Schwab

CLICK TO ENLARGE  Here is the model to which the returns are tracked.  This is where an investor begins to get information on whether it is an appropriate model.

The index approach that I and many others follow seeks to attain returns close to the returns of the model.

But the model is also useful for those who see themselves as a market-beating investor.  It provides a well-defined benchmark against which to compare stock picking, market timing prowess.  Sort of like telling an alien that similar cars only get 28 miles to the gallon.  Then it has a benchmark.

Benchmarks revisited

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?