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Benchmarking Your Portfolio In Tough Times

Benchmarking Your Portfolio In Tough Times
By Ron DeLegge, Editor

July 21, 2008

SAN DIEGO ( - Look at your calendar. We’ve already reached the half-way point of the year. How’s your portfolio doing?

Right now is a good time to evaluate the health of your investments. Is your portfolio progressing or digressing?


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


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Total U.S. Stock Market

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


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


Total Bond Market

If you own any individual corporate bonds or a bond fund, see how they’ve been performing relative to major bond ETFs like Vanguard’s Bond Fund (Ticker: BND).


If you own individual government bonds, consider simplifying your life by sticking with maturity bands that meet your needs. The iShares offer a series of six treasury bond ETFs with maturities ranging from short term (SHV), intermediate (IEF), and long-term (TLT).


International Stocks

Do you own any foreign stock funds? If you do, don’t forget to benchmark them to the performance of ETFs that track major foreign indexes.


The SPDR MSCI All World ETF (Ticker: CWI) or Vanguard FTSE All World ETF (Ticker: VEU) can give you perspective on how well or poorly your foreign stocks are performing.


Individual Stocks vs. Sectors

What if you own individual stocks? One quick way to see how they’re doing is to compare the performance of your individual holdings versus their corresponding industry sectors.


If you own Microsoft, for example, simply compare its historical performance versus the Technology Sector SPDRs (Ticker: XLK). XLK is a basket of 80 leading tech stocks that are members of 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 your stock is easy to do.  



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


According to research from the Vanguard Group, the ten-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, mid, and small cap stocks.


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

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