Finding the Right Benchmark for Your Portfolio

hank

I don’t have time to run an accuracy check of everything this M* contributor claims. So please don’t hold me accountable. But I do agree with her that for some (myself included) using a benchmark can be helpful, as long as the risk / reward profile fits with your own. As the author asserts, this can be an index / combination of indexes or a mutual fund / combination of funds.

Morningstar Article

As a 25+ year investor with TRP I’ve generally used one or two of their funds for this purpose. For years my benchmark / tracking fund was their 40/60 retirement fund TRRIX. Beginning this year it flipped to their PRSIX - a nearly identical fund, but with a 5% weighting in a hedge fund. Performance wise they’ve also been nearly identical over the years.

The value of benchmarking is that over time (months / years) you arrive at an understanding of how your portfolio performs relative to the benchmark. If you find you’re deviating a lot more than you like it’s easy to modify holdings until your performance falls more in line with your tracker. There will always be exceptions, of course. Ideally you’d like to keep volatility (especially on the downside) similar to or below that of the tracker while enjoying somewhat superior overall performance. It’s a process that evolves over years and never really stops.

Friday, my combined portfolio gained .07% - one of the dullest days I can remember. However, my tracker, PRSIX, gained just .05%. IMHO that’s reason to be cheerful.

catch22

Our benchmark remains FBALX. Yes, a bit "hot" for many in retirement, as an investment. Though not invested in the fund in 2008, it took a big hit, too; as with many other 70/30% funds. We have been able to get close to the 15 year return of 8.48, which has changed from about an average of 8.2% annualized as 2020 returns bumped this number. We attempt to get close to 7.5-8% annualized. 'Course, as expected, not unlike others; we've had the very good years get whacked by the poop years. Our largest portfolio benefit was to escape the 2000 and 2008 melts. Not fun to "make up" a portfolio loss from an actual sell. We have not yet decided whether FBALX will be a major percent holding when we stop meddling with our holdings. Our active would become a psuedo passive with FBALX management of the money.

YTD, 1-Year, 3-Year, 5-Year, 10-Year, 15-Year, Since Inception (7 periods time frame)

Returns 3.78% 59.15% 14.23% 13.68% 11.03% 8.48% 9.76%

Category Ranking % 21 32 7 4 3 4 7

# of funds category 695 697 664 639 571 411 300