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Benchmarking in Tough Times

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Look at your calendar. We’ve already reached the half-way point of the year. How are your clients’ portfolios doing? Right now is a good time to evaluate the health of their investments. Are their portfolios progressing or digressing?

One good way to find out is to evaluate your stock and mutual fund holdings versus the exchange-traded funds tracking major benchmark indexes.

Total U.S. Stock Market Do your clients own domestic stock funds? If they do, then compare the performance of their funds to ETFs that follow key domestic equity barometers. This will give you context as to how well or poorly their active mutual funds are performing.

The SPDR DJ Wilshire 5000 ETF (TMW) or the Vanguard Total Stock Market ETF (VTI) can give you a good indication of where they stand. If a stock portfolio is badly underperforming either one of these ETFs, then it could be time to make some major adjustments.

Total Bond Market If a client owns any individual corporate bonds or a bond fund, see how they’ve been performing relative to major bond ETFs like Vanguard’s Bond Fund (BND).

If they own individual government bonds, consider a switch to products with simpler maturities. Barclay’s iShares offers a series of six Treasury-bond ETFs with maturities ranging from short term (SHV) and intermediate (IEF) to long term (TLT).

International Stocks Do your clients own any foreign stock funds? If so, don’t forget to benchmark them against the performance of ETFs that track major foreign indexes.

The SPDR MSCI All World ETF (CWI) or Vanguard FTSE All World ETF (VEU) can give you perspective on how well or how poorly a client’s foreign stocks are performing.

Individual Stocks vs. SectorsWhat if a client insists on owning individual stocks? One quick way to see how they’re doing is to compare the performance of their individual holdings versus their corresponding industry sectors.

If they own Microsoft (MSFT), for example, simply compare its historical performance to that of the Technology Sector SPDRs (XLK). XLK is a basket of 80 leading tech stocks that are in the S&P 500.

Almost every publicly traded company belongs to a specific industry group and finding an ETF that tracks the same sector as a particular stock is easy to do.

Cost One last area to benchmark is cost. Many investors have tricked themselves into believing the costs of their investments don’t matter.

According to research from the Vanguard Group, the 10-year annualized return of large-cap mutual funds with the highest expense ratios was a disappointing 5.20 percent versus a better 5.92 percent for funds with the lowest costs. The same widespread underperformance was reported for mutual funds with the highest cost in other categories, like bonds, small- and mid-cap stocks.

By taking simple steps to benchmark your clients’ investments, you can make sure they are on track to reach their financial goals.

Ron DeLegge is the San Diego-based editor of


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