Measuring your investment performance is not always an easy task. Most people compare their returns to a standard index, such as the S&P 500 Index or the Dow Jones Industrial Average. That approach is appropriate if your portfolio is comprised of investments closely aligned with the S&P 500 Index or the Dow Jones Industrial Average. For our clients, that simply is not the case.

BWA uses multi-asset class portfolios that are custom designed to meet our client’s risk tolerance and their financial goals and needs. Any performance measurement needs to consider the allocation of asset classes within the portfolio, as well as how that portfolio has been structured to accommodate an individual client’s risk tolerance.  
You wouldn’t compare the S&P 500 Index, comprised of 500 large-sized companies in the US, to the Bloomberg Barclays US Aggregate Bond Index, which is made up of US bonds. Stocks and bonds perform quite differently and are not a reflection of either’s performance. Generally, stocks tend to have a higher level of volatility (or risk) than bonds. You can’t compare one asset class directly to another when measuring performance.

To properly benchmark a portfolio with various asset classes, you should measure each of the asset classes within the portfolio against an appropriate index. So, we would measure our small company US stock fund to the Russell 2000 Index. We have appropriate indexes to measure each of the asset classes we use against. This is a fairer way to measure the performance of the components of one’s portfolio.

We believe that the more non-correlated asset classes that are used in an investment portfolio, the better. Often, 9 or 10 asset classes are used to build a client portfolio.  Each client portfolio is unique and should act differently according to its design. This is our way of managing risk. Notice we used “managing” not “eliminating” risk.   

If each component of the portfolio is performing well, then the overall portfolio should also be performing well. However, if a client is dissatisfied with their portfolio’s performance, then its component parts may not be to blame, it might be the design itself.  

It can be difficult for some clients to get accustomed to this form of measurement, especially given each night’s reporting of the rise or fall of the S&P 500 Index or the Dow Jones Industrial Average. As we said at the beginning of our home page, proper financial planning and wealth management is not supposed to be easy; it is supposed to be suited to you and your family’s goals. We are risk conscious and goal focused.

No two investors are the same. Balanced Wealth Advisors provides customized investment solutions for families and individuals. Contact us or call (603) 424-1892.



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