You make your financial advisor accountable for beating the stock market. You make the S&P 500 index fund your proxy for the performance of the […]
A Benchmark is a performance goal. Your advisor is paid to produce results that beat the performance of your benchmark. If your advisor does not beat the performance of your benchmark you might as well invest in the index funds that make up the benchmark and reduce your fees by 75%.
Let’s say the investment performance of your stock portfolio was a positive 10% for the past 12 months. You think, “not bad, a double-digit rate of return”. However, what if the stock market is up 20%? Instead of being up 10% you have lagged the market by 10% – a complete reversal.
When your financial advisor says the stock market is up 20% he is usually referring to an index fund that is supposed to represent the performance of the market. Two frequent examples are the Standards & Poor 500 (S&P 500) and the Dow Jones Industrial Average (DJIA). […]