Personal Wealth Management / Expert Commentary

The Importance of Having a Benchmark

When driving, you usually want some help to stay on the road—for example, proper road lines and lighting. Without something guiding you, how can you know if you are on track to get to your destination? The same goes for investing. A benchmark provides a way for you to evaluate if you are on target to meet your goals.




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Ken Fisher: You're driving down the road, it's dark. You're a little bit old, so your eyesight is not as good as when you were. Suddenly, you dip down into a valley and there's a lot of fog--hard to know where you are, hard to know where you're going. What do most people do? They slow down. What would help them?

Ken Fisher: Well, we know what would help them. Painted lines on the road to keep them in-between, brightly colored reflectors, lights.

Ken Fisher: What are all those? Those are benchmarks. Those are benchmarks to help you stay on track. The fundamental feature of using a benchmark in investing, regardless of the type of investing that you're trying to do, is that it actually helps you focus on where you're supposed to get to and how you're doing relative to getting there.

Ken Fisher: So, for example, we could think about benchmarks for the U.S. equity market, like the S&P 500, or fixed income, whether government or corporate or a combination, or cash management, or putting together a portfolio that has all of those in-proportional pieces.

Ken Fisher: The benchmark still helps you see, "Am I getting where I'm supposed to be going to based on my plans, or not?" And then I keep thinking about the benchmark because I have the benchmark, so it's not just a measurement tool, it's also a portfolio management tool, because you keep thinking about the pieces of the benchmark, and not letting yourself vary too darn much so you don't shoot yourself in the foot by taking your vehicle in that foggy night and running it off the side of the road into a ditch, which is the most important part.

Ken Fisher: The road will get you where you need to go if you can just stay in-between the lines.

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A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”


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