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Using Benchmarks to Evaluate Portfolio Performance

Many investors evaluate their portfolio returns against benchmarks like the S&P 500® Index. But even the broadest index is unlikely to reflect the diversity of many long-term investors’ portfolios, which often include not only domestic stocks but also bonds, cash investments and international equities—to say nothing of more-specialized asset classes.

“If your portfolio holds both stocks and bonds, the S&P 500 wouldn’t be an accurate gauge because it measures only U.S. large-cap stocks,” says David Koenig, vice president and chief investment strategist for Schwab Intelligent Portfolios®. In this case, a blended benchmark—consisting of, say, the S&P 500 and the Bloomberg Barclays U.S. Aggregate Bond Index—could offer a more accurate comparison point. Just remember to blend the two indexes in direct proportion to your holdings. If your portfolio consists of 60% stocks and 40% bonds, for instance, the index blend should also be 60/40.

Benchmarks can also be useful for evaluating actively managed funds, as the success of such funds is most often measured by how much they outperform their underlying index. That said, “any fund can beat a benchmark over short periods,” David says, “so look for outperformance over a longer period—ideally, three to five years, or even an entire market cycle.”

In the end, however, investing isn’t a competition—it’s about achieving your goals. If your portfolio gains 8% against a benchmark that rose just 4%, for example, you’ll likely be pleased with your outperformance. But will you have enough for a comfortable retirement? No benchmark can tell you that, so work with a financial advisor if you’re unsure.

What You Can Do Next

  • Use Schwab Intelligent Advisory’s online tool to start building your plan.
  • Work with a Certified Financial Planner™ professional to put it into action.
  • Learn more at Schwab Intelligent Advisory.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Schwab Intelligent Portfolios® and Schwab Intelligent Advisory™ are made available through Charles Schwab & Co., Inc. (“Schwab”), a dually registered investment adviser and broker dealer.

Please read the Schwab Intelligent Advisory disclosure brochure for important information about this program.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The S&P 500 Index is a market-capitalization-weighted index comprising 500 widely traded stocks chosen for market size, liquidity and industry-group representation.

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.

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