Mind Your Benchmark

Comparison is the thief of joy

We’ve all suffered from comparison. Financially, socially, physically, and even spiritually. It’s so tempting to measure our place or progress against someone else. It is reasonable, too. Without comparison, we can’t be certain of how our progress measures up. However, once we’ve found whatever comparison we seek, does it make us feel better? Does it offer more perspective? Does it motivate us? Regardless of the reasons or outcomes, comparison to others is part of our human existence.

This quote is attributed to Teddy Roosevelt. “Comparison is the thief of joy.” No doubt he was speaking about the vice of comparison rather than any benefit. His advice reminds us that comparison can ultimately leave us feeling inadequate. Sadly, his warning applies often. When we feel the need to compare ourselves with others, we can feel unsuccessful or (worse) unappreciative of what we have.

The need for comparison

Hear, hear, Teddy, good point. Yes, we can spiral down a woeful path of endless comparisons, ultimately leaving us miserable, but comparison can also be a useful gauge in life. It can be motivating. It can provide healthy perspective. It can certainly be inspiring. For instance, I network with many financial planners who I admire. I regularly take stock of their progress and the process that brought them there. I view their growth and achievements as something to aspire to rather than something to covet.

The difference is that I respect these professionals and seek to serve my clients in a similar, benevolent way. Therefore, digging into their experience and success helps me craft my goals and inspires me to achieve them. They are my professional benchmarks. They are healthy benchmarks.

A healthy benchmark

Comparing myself to other financial professionals works because I’m careful about who I compare myself to. I choose to compare myself to professionals who seek to serve their clients in a similar way. They put their clients first. They charge reasonable fees and, most importantly, don’t sell financial products that are unnecessary or potentially harmful. I’m also careful to compare myself to good planners who are on a similar journey. That is, I don’t compare my growth to those who have been serving clients for over 10 years.

This comparison works because I’m rational about who I choose to admire and careful not to suffer jealousy.

A financial benchmark

When it comes to finances and portfolio, all the ideas I’ve mentioned above hold true. Don’t compare yourself to others too much, but when you do, find healthy comparisons and avoid jealousy.

For portfolios, we call these comparisons benchmarks. Benchmarks are the way we assess how our portfolios are performing. We can compare a crafted portfolio against a benchmark to 1) assess our judgement and skill in creating a efficient portfolio and 2) detect any changes that might be needed.

Often, prospects will bring a portfolio to me and complain, “I don’t think my portfolio is doing very well.” They usually qualify this complaint with “I don’t know, I just feel like it should be doing better. I know the market is on a tear right now and my portfolio isn’t growing that much.” Fair enough.

However, once I collect the information and dig in, usually I find that the portfolio is behaving exactly as expected. Based on their allocation and chosen funds, the returns they experience are right in line with how those investments are designed to perform.

After some discussion, prospects usually understand. However, their frustration remains. It turns out, they really aren’t frustrated with their returns or the behavior of their portfolio. Instead, their frustration is seeded in comparison.

For the last 4-5 years, the popular newsworthy benchmark has been the S&P 500. That is, the S&P has experienced AVERAGE 14% growth per year over the last 5 years. That means an initial investment would have doubled over that time. Remarkable. This wonderful return has been the buzz, inspiring news stories, continued investments, and water cooler discussions. If you had all of your money in the S&P, you were a genius. If you didn’t, you were a fool. For folks with more balanced portfolios, they felt left out. They felt foolish.

The right financial benchmark

They weren’t foolish, though. They were simply comparing their portfolio to the wrong benchmark.

One of my favorite references to use is the Callan Periodic Table of Investment Returns (year end 2024). This document compares the most commonly used asset classes over the past decades. Each class is ranked annually depending on their overall return. The individual color coding helps us follow assets classes year to year, highlighting the ups and downs for each type.

If you glance at the chart, you’ll see the recent darling asset, S&P 500 (shown as large equity), leading the way over the last 5-6 years. This is expected. If your portfolio only contained large-cap equity stocks, you have done well recently. However, if you had any other popular type of asset such as international or US Bonds, your returns weren’t as robust.

So, if you have a more balanced portfolio, why compare it to only the S&P? If international stocks perform the best in 2025, would you choose to compare your balanced portfolio to that? What if you choose to own only S&P 500 funds because of recent returns and then Real Estate (REITs) performs the best? Suddenly you’re not as much of a genius; at least compared to the wrong benchmark.

How to find your benchmark

The good news is, there are many ways to compare your portfolio to a healthy benchmark. Here are a few helpful ideas:

1) Match asset allocation: Likely the most appropriate type of benchmark, matching index funds relative to the asset allocation of your portfolio will give you the best idea of how well your investments are performing. This tactic involves identifying the types of asset classes you currently hold in your portfolio, their weight percentage in your portfolio, and then building a custom portfolio of index funds for comparison.

If you like to select individual stocks, this method will tell you how well your selections are performing relative to their peers and validate (or rebuke) your choices. If you own actively managed mutual funds, this will give you an idea of how well those funds are performing relative to their market indexes. Finally, if you own index funds, this process isn’t very valuable since the benchmark will be created using similar index funds.

How it’s done: If you own 40% large cap stocks in your portfolio, 40% of your custom benchmark portfolio should be in a good S&P Index fund. 20% international stocks? You guessed it, 20% in an international index fund and so on. Just make sure every part of your portfolio has a correlated index fund in the benchmark.

You can get more granular if you wish. Separating your stocks further into growth/value stocks will provide more context. Of course, this involves more work and, yes, requires more specific types of index funds.

2) Compare to age/risk norms: There are so many rules of thumb when it comes to portfolio design. One of the most common is: “Subtract your age from 100. The result is the percent of your portfolio that should be invested in stocks.”

You can use this rule or any other type of age norm to build a comparative benchmark. You can use lifecycle funds that are targeted to mature at a specific year. You can also use funds that are designed to favor value equities over time. Any portfolio that is designed to follow you on a retirement path or target a specific year will do.

This benchmark comparison won’t tell you much about your portfolio performance. That’s OK. That’s what the asset allocation benchmark is for. Instead, this type of benchmark will help you understand the type of portfolio you’re currently holding as compared to your peers. Lifecycle portfolios and others described above are designed to change over time, eventually arriving at a target or maturity date. Therefore, comparing your portfolio to these types of funds will give you an idea of how you’re currently investing compared to those with similar retirement and/or “target” dates.

Note: Lifecycle funds are usually designed to appeal to conservative investors. Your risk tolerance and capacity should be considered.

3) Risk benchmarks: This is the most technical and requires the most work. If it gets too complicated, feel free to reach out directly to discuss ideas or your situation in more detail.

Risk benchmarking is all about volatility. That is, how much “up and down” can you tolerate? Also, are you getting enough return for the ride?

In portfolio creation, we express risk in the form of standard deviation. Basically, standard deviation tells us how volatile our portfolio will perform over time. For instance, if a portfolio has a standard deviation of 10%, returns will fluctuate +/- 10% from the expected return 68% of the time and +/- 20% from the expected return 95% of the time.

Knowing the standard deviation of your portfolio can be helpful in a few ways. Primarily, the standard deviation creates an expectation of how our portfolio will perform. It primes us to tolerate the normal ups and downs of the market. It can also help us assess if our portfolio is efficient enough.

I like Portfolio Visualizer to assess standard deviation and find the efficient frontier.

Once you know the standard deviation for your portfolio, you can use it a few different ways. First, you can solve for the efficient frontier. The efficient frontier will provide various asset allocations that maximize return relative to different standard deviations. (Warning, if you use historical data, the efficient frontier will probably steer you to the S&P 500. You can adjust projections to make it more realistic). Also, you can find the Sharpe Ratio which measures how efficient your portfolio has behaved. The higher the better.

Creating a benchmark around these ideas will take some work, but basically you should try to create different types of portfolios with a similar standard deviation to the one you’re trying to assess. Can you create a portfolio that provides greater returns for the same amount of standard deviation? You can directly compare that portfolio with yours using the Sharpe Ratio. Again, the higher the better!

Using a risk benchmark isn’t likely the most actionable option of the three types here. However, it does give you an idea of how efficient your portfolio is and can provide ideas for possible rebalancing or moving towards indexing strategies. Again, reach out with questions.

Mind your benchmark

Comparison can be helpful. Done well it can provide prospective, inspiration, and guide us to more efficient decisions. Done poorly it can lead us to despair and jealousy. Sadly, there are many more ways to do it poorly than well. There will always be an asset or stock return that outperforms your portfolio. The trick is ignoring it. It’s not your benchmark. It’s important to remember that the benchmark you choose should be as unique as your portfolio. Careful selection of the right benchmark will help guide the way. Choose yours and mind it carefully.

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Want to learn more about risk? Check out my 3 part series exploring risk and ways to deal with it: About Risk, More on Risk-The Wiggle, and Risk Realized and the Goal Window.

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute financial, investment, legal, or other professional advice. While we strive to ensure the accuracy and completeness of the content, we make no guarantees regarding its reliability or suitability for any particular purpose. Readers should consult with a qualified financial advisor before making any investment decisions. As a fiduciary Registered Investment Advisor (RIA), we are committed to acting in your best interests. However, past performance is not indicative of future results, and all investments carry risks, including the potential loss of principal.