Stay Focused Through Personal Benchmarking

"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed".
-Benjamin Graham

Stock Market Investor and Economist

Portfolio management is the art of investing your money in hopes of increasing your capital but not losing it.  Seems simple doesn't it?  However, portfolio management is anything but straightforward.  In Canada alone, there are over 4,000 different mutual funds, as well as individual stocks, bonds, income trusts, and more.  The data available to the average investor is overwhelming.  Newspapers, magazines and entire TV channels are dedicated to investing, and of course your well-meaning friends love to give free advice. With all this information and the constant turmoil in the markets, how do you stay focused on your reason for investing in the first place?

One method is called Personal Benchmarking.

What is Personal Benchmarking?

Personal Benchmarking is a method of understanding the long-term proceeds you need from your investments to achieve your goals.  It is easy to say that you want the best returns, but unless you are willing to take some risk with your hard-earned money, these returns may be unachievable. 

For example, if you plan to retire in ten years, based on your current portfolio and the amount you plan to invest over the next ten years, what rate of return do you need to attain that goal?  (If you need help calculating this figure just let us know and we would be happy to help). Let's say you need a six per cent annual compound rate of return to achieve your goal. That becomes your Personal Benchmark.  Instead of always shooting for the moon with your strategies, you can design your portfolio around achieving six per cent per year.  You can then take less risk with your portfolio and sleep at night.

Once you have established a portfolio with an annual return of six per cent on average, you can compare your actual returns to your Personal Benchmark each year.  Some years you will be ahead and others behind, but as long as you are not too far away from your Personal Benchmark each year you likely have the right mix in your portfolio.

How does Personal Benchmarking help?

Far too often, people do not compare their investment portfolio to the returns they need but to what the media is saying, what advertisements are promising or what friends and neighbors claim they are getting.    As advisors, we frequently hear clients claim "I just read in the paper about a fund that did 40 per cent last year – let’s buy that!!!" or "My neighbor is getting much better returns than me – what can we do differently?"  This ‘keeping up with the Jones's syndrome is bound to lead to disappointment and loss for all parties concerned'.  It means that decisions are not being made around solid investment management principles but by chasing new hot investment ideas.  If you are trying to invest to accomplish a long-term investment objective, Personal Benchmarking is the safest way to proceed.

If you do not have a Personal Benchmark for your investment portfolio and would like to start tracking your investments using this methodology, please contact our office for a consultation.