For investors, there’s one thing we are all concerned with doing. And that’s beating the market. It consumes 99% of our thought process when crafting our portfolios. How do we generate better returns than say the S&P 500 or Russell 3000? After all, benchmarking provides an easy way to gauge the progress of your portfolio.
However, most investors often get benchmarking completely wrong.
Comparing our portfolios to a single index or group of stocks might not be the best choice. And in fact, it could be downright dangerous for some investors. Yes, it’s important to gauge our returns, but picking the right measure is even more important.
Read an overview of the S&P 500’s dividend yield and growth story here.
Stop Looking at the S&P 500!
There’s a good chance when you look at your portfolio’s returns, you compare it to the venerable S&P 500 index. There’s nothing wrong with the benchmark, as it represents the largest stocks in the U.S. economy, covers about 78% of the nation’s total market cap and is an excellent index to hold. And it is kind of cool to say that you beat the S&P in terms of returns for the year. But that might not actually be the best thing for your portfolio.