Benchmarking my portfolio – June 2022 update
A benchmark is a standard or measure that can be used to analyze the allocation, risk, and return of a given portfolio. A variety of benchmarks can be used to understand how a portfolio may be performing – so for today’s post I’ll share my thoughts in this benchmarking my portfolio – June 2022 update.
One of the biggest challenges for an investor is to determine how well (or how poorly) their investment portfolio is performing against another meaningful portfolio or an index.
These are some popular indexes I’ve used and continue to monitor:
S&P/TSX Composite Index – Canada
This is probably Canada’s best-known benchmark index. This index tracks about 250 companies listed on the Toronto Stock Exchange, with financial, energy and materials companies making up the bulk of Canada’s equity market.
S&P/TSX 60 Index – Canada
The S&P/TSX 60 Index is a stock market index of 60 large companies listed on the Toronto Stock Exchange. Maintained by the Canadian S&P Index Committee, a unit of Standard & Poor’s, it exposes the investor to ten industry sectors. It happens to be my personal favourite to measure my portfolio against given the Canadian stocks I own.
S&P 500 – U.S.
This index is made up of 500 large-cap U.S. companies; this index is one of the most widely used benchmarks of U.S. equity performance.
MSCI World Index – Global
This index tracks large and mid-size company stocks in developed markets from around the world. This index is most often used to benchmark against global equities (including Canada and US). Like most competitive aspects in life, it’s hard to know where you stand unless you measure where you are.
You can’t manage what you don’t measure.
In their Nobel Prize winning work on Modern Portfolio Theory, Harry Markowitz and Bill Sharpe showed that one’s tolerance for investment risk should be the primary driver of one’s investment asset mix.
That means, an investor should only take on more risk if he or she is expecting more reward.
This implies smart investors typically take on ONLY the investing risk they need to, to meet their investment objectives. Nothing more.
As such, benchmarking never really accounts for that investing risk. No two investors are alike. No two investing objectives are alike. One investor using a “60/40 split” (of 60% stocks and 40% bonds) might be meeting their investment objectives just fine whereas another could be totally failing.
I say this to put a caveat to my results below. Some investors will have performed better that I have over the last 10-years. Some investors might have lower returns. Timing of purchases, taxation considerations, entry or exiting stocks or ETFs will have an impact to say the least.
My Own Advisor results
For years, well over a decade in fact, I’ve decided to unbundle one of my favourite Canadian ETFs for income.
Have you considered unbundling your Canadian ETF for income?
For me, and my focus on mostly blue-chip Canadian dividend paying stocks held inside the Canadian-dollar accounts of my taxable account, our TFSAs (x2), and our RRSPs (x2), I think a great benchmark for our Canadian dividend income portfolio remains iShares S&P/TSX 60 Index ETF (XIU).
I think XIU continues to make sense to benchmark my portfolio against, again, for Canadian accounts, because our portfolio is based on Canadian banks, telcos, utilities, energy and industrial stocks that have paid their dividend consistently over time.
Here are the results:
|Account||Previous January 2018 update||10-year returns
Until May 31, 2022
|XIU** 10-year returns
Until May 31, 2022
|Taxable||11%||11.2%||9.85%||Canadian dividend paying stocks only|
|TFSA 1||9%||9.1%||Mix of Canadian stocks, REITs and low-cost ETF XAW*|
|RRSP 1||9.1%||Mix of Canadian stocks, REITs.|
|RRSP 2||10.7%||Mix of Canadian stocks, REITs.|
*XAW is down about -15% year to date at the time of this post.
**XIU is only down about -2.5% year to date at the time of this post, with multi-decade returns around +8%.
What about our U.S. accounts?
I also monitor our U.S. accounts but not to a big extent. Based on the limited holdings in our U.S.-dollar RRSPs, I know how things are going. In the last six months, low-cost tech ETF QQQ and U.S. total market index ETF VTI have been hammered. While I own a few U.S. stocks, it’s easy to see how they have performed.
Here are some key U.S. holdings at the time of this post:
- Johnson & Johnson (JNJ:US)
- Proctor & Gamble (PG:US)
- BlackRock (BLK:US)
10-year returns for the U.S.-dollar portion of our portfolio hover around 13.1%.
You can read more about my asset allocation and rationales here.
You can check out some RRSP withdrawal strategies before age 71 here.
Benchmarking my portfolio summary
At the end of the day, I think monitoring your portfolio against a benchmark can definitely help you understand the performance of your portfolio but that’s where it ends.
Benchmarking has shortcomings, which means I’m very likely to call this my last benchmarking update ever on this site!
- Benchmarking will not accurately account for all risks taken (to earn investment returns).
- It says little about taxation or asset allocation tactics.
- The composition of assets within a benchmark are active to a degree – they are subject to change – and you have no portfolio control over that. Benchmarking is therefore a point in time performance measure. Don’t obsess over benchmarking your portfolio. Looking at your portfolio, often, is a great way to chase performance and undermine your goals. Don’t obsess over your investment portfolio and its short-term performance against any benchmark. At times you might be ahead and in other times you might be lagging any benchmark. Focus on your own goals and if you realize them, little else matters anyhow.
Another main reason why this might be the last benchmarking update on my site?
I don’t care too much about any benchmark.
My focus as I approach semi-retirement is the sustainable income (and growing income) that my/our portfolio can generate over time – not much else. 🙂
Sure, back to you, benchmark your portfolio from time to time to see how well your portfolio might be doing against key indexes for a point-in-time measurement stick AND to ensure the money management fees you are paying for to any financial advisor are really worth it.
Otherwise, I suggest you consider focusing on rising cashflow from your portfolio to cover rising spending needs over benchmarking exercises.
What’s your take on benchmarking? Do you benchmark your portfolio? Why or why not?
Brent: Going on 16 years in retirement, where we basically have not added any new funds, and our income has continued to grow., even when market value dropped. Not worried about what might happen.
I like to have an idea of what’s happening in markets overall and how we’re doing against it. But much more important to me is are we meeting our needs with our cash flow; are we growing this and are we comfortable with our asset mix.
Well put. I’m very much in favour of total return for asset accumulation of course but at some point, you don’t really care what XIU or VTI or QQQ does and it’s more about asset preservation, capital protection along with meeting any spending needs of course.
I feel myself getting to that place and this may or may not be my final “benchmarking” update for that reason 🙂
You know what you just wrote makes a lot of sense to me!
The only benchmark I use, is how much my investment income has increased from year to year. 10% is a nice minimum. I’ve never worried about my capital value or comparing it to any benchmark.
Yes, growing income is very important these days and will be in the coming years with higher inflation and higher interest rates.
If we only measure income growth…..we are only measuring part of our total return. What happens if income stays the same but asset is declining. Do you really want to maintain that as part of your investment? At some point that asset may not have value and the income stream will be gone. I would suggest your answer may be an oversimplification of how you actually do manage your investments.
Quite fair. Total return = mix of capital appreciation (i.e., stock increases in price), dividends, interest, etc. I like total return but at times like these, I can also appreciate if capital appreciation is flat then you are paid (via dividends) to wait until prices climb again.
Most folks don’t realize that if you reinvest dividends, you are essentially betting on the total return of any one stock. It’s like you never took the dividend in the first place 🙂