Making and Using Investment Benchmark Portfolios.

These are also known as null portfolios, normal portfolios, comparison portfolios, market proxies, benchmark indices, index benchmarks, composite benchmarks, and target portfolios

The cost of this service is at the bottom

It's impossible to manage what you can't measure. Benchmarking is the process that appropriately compares and measures investment performance.

One uses custom benchmark portfolios to compare the performance of actual (client) portfolios to an identical portfolio comprised of benchmark indices. To be identical, they have to have the same asset classes, weights (percentage held), and time frames, as the actual portfolio. In other words, a "shell" that is identical to the actual portfolio is created, and then funded with indices.

The difference in returns is the value added (or lost) due to "active management." If the actual portfolio made more money than the benchmark portfolio, then the person that actively chose the funding investment vehicles provided that difference in value. If it didn't then the person did not, and the investor would have been better off funding the asset allocation with index funds (or ETFs). Funding a buy and hold asset allocation with index funds or ETFs is called a "passive management" strategy.

Active management is jargon that means someone is actively managing the portfolio by implementing one, or a combination of, the three ways to manage money (click here to read about the three ways). This is in contrast to "passive management," which typically means just holding a constant mix of indices (although if you use more than one asset class, then you're using asset allocation by default).

The alternatives are to compare actual portfolios made up of different asset classes (cash, bonds, int'l, real estate, tech, etc.) to a single market index (e.g., S&P 500).

It should be obvious (to pros) that comparing a portfolio comprised of different asset classes to the S&P 500 is just not correct. This is because you want to compare things apples-to-apples, and there are oranges and all kinds of other fruit in the actual portfolio. It would only be correct to compare a portfolio of about 60% Large- and Mid-Cap Growth stocks and about 40% Large- and Mid-Cap Value stocks to the S&P 500 (because that's what the S&P 500 basically is).

Another commonly used alternative, is to use mutual fund universe asset class averages like those contained in programs like Morningstar Principia. These are helpful, but have lots of problems, like survivorship bias (when a fund goes under, it drops out of the database which upwardly biases the average returns the month after it's gone), very limited asset class data, and it's hard to use.

With the services we offer, you can pick any monthly time frame you want. For example, if you maintain a model portfolio and your fiscal year ends in August, then you'd probably want data from 8/31/07 to 8/31/08 to show one-year return comparisons, and 8/31/03 to 8/31/08to show five-year returns.

Creating benchmark portfolios is the correct/professional way to compare things. You don't see it used very much because professionals would have to first figure it all out, then shop for software (there's really only one program that gives good data with all of the asset classes over all monthly time frames), then buy it, then learn how to use it, then actually sit at the computer and do it, on a monthly basis.

Then most wouldn't want to show the results to clients because it puts the spotlight directly on their performance. It's extremely hard to consistently beat the indices, so they'd get beat up by clients most of the time and have to waste time answering too many questions. They'd rather be on the phone managing relationships than being a computer nerd and answer those kinds of questions, so they just don't do it. It just easier to let sleeping dogs lie than to open a huge can of worms and start a battle they probably won't win.

If you're a financial professional managing money for clients, and you're pretty sure what you're doing is adding value over a passive strategy, then this is a great way to prove you're earning your keep (and why you're better than your competition, which statistics show is the #1 criteria people use in hiring money managers). If you're not sure how you're doing - then this will tell you (without having to buy very expensive portfolio management software). You don't need to show the results to your clients if you don't want to, you can just use it for your own reference.

If you're an investor, then this will tell you how you, and/or, your investment manager are doing. If they're underperforming, then you may be better off doing it yourself (read how to do it yourself).

If you're interested in having custom portfolio benchmarks created using indices represented by generic asset classes (indices), please send an e-mail telling exactly what it is you want. It will take a few e-mails to provide you with an estimated price.

Basically, you send a portfolio (text is fine - all that's needed is the full name of all of the assets and dollar amounts) and a time frame, and you'll get a custom benchmark portfolio comprised of the best available fitting indices for each asset class back, with returns looking back over any time frame (as long as the data goes back.

Time frames are in monthly increments only, and are lagged a few weeks because the updates don't come until the third week of each month. Then you just compare the returns to the actual after-fee returns and then go from there.

The work you'll receive is not protected in any way, so you can reformat, update, and change anything you want to.

All work is confidential and no information is given out to anyone without your permission, period.

Why rack your brains and spend way too much time and money over this? Just let us do it!

Warning! Getting custom benchmark portfolios made is a big deal that requires work on your part. It is not part of the Bundled Deals, and could cost over $500.

Unless you're very sure that your way of doing things has beaten the same way you did things (or sure that you got lucky), by using indexes instead of the actual investments, then you'll probably just spend a lot of time and money just to be disappointed.

Another Similar Service

Send e-mail if you would like to get your portfolios/models properly 'linked," like they are in our model portfolios, to show the actual historical returns after accounting for past trades.

In other words, if you send all of your trades, we can make a spreadsheet to determine true historical performance. If you don't have expensive portfolio management software, this is the only way to do it.

If you're showing people your investment model returns, and they are not properly linked, then it's only a matter of time before your Broker Dealer, FINRA, and/or the SEC find out, and fine you an average of $25,000! For example, the model portfolio's demo just shows returns using the current funds going back in time (and historical returns and yields for all 56 models).

But in reality, there were many trades (mutual fund switches) during those time frames that are not accounted for. They are accounted for by linking them in a spreadsheet (or expensive portfolio management software). These linked actual returns are in the chart of returns on the asset allocation model page. The difference between the linked and non-linked returns can be seen on the main asset allocation page.

You don't get the spreadsheet showing this linking until you buy the investor models, or you buy the service. So in order to pass FINRA compliance, you have to either clearly distinguish them as being hypothetical to use them, AND give people text that looks like the text in this Word doc (that have been approved by several Broker Dealers for almost ten years), that clearly explains that the returns are not real.

Or you have to use expensive portfolio management software to compute the actual returns accounting for these trades, or you have to make a huge and complex spreadsheet yourself to account for the trades.

The point is that we will make this spreadsheet for you - all you have to do is supply the model allocation, assets, dollar amounts, trades, and the money to do the work.

You'll get a quote back once you tell us what you want and what data you have.

For downloads, right click on a link below, then choose "Save (Target) As..." to save to a folder on your hard drive. Then open it with MS Word or Excel. Sometimes the WPP's server doesn't work well with weird browsers, or it just may not work if it's not configured right. Please send e-mail if you have any problems, and it will be sent to you. Answers to frequently asked demo questions, and how to use demos.

Download a newsletter explaining portfolio benchmarks

Also download the model software demo and pretend this is what you/your client actually owns. If you want to know how the performance of the model would have been using index funds instead of the actual investments you picked (mutual funds, stocks, etc.), over a given time frame, then this is the correct way to do it

Download a sample monthly "How's your portfolio doing compared to the benchmarks" newsletter

Download an example of a benchmark portfolio done for a financial planner's four-model 401(k) allocation. This customer only wanted to use two asset classes, so not doing the job on an apples-to-apples basis skewed the results to make their performance look worse that it really was. It has 44 data points in all, shown in green, so it cost $220 to set up the first time, and then $22 to update

Download a simple example of a benchmark portfolio for investor models used on this site

Our portfolio benchmarks are also used on this website: http://www.myownfund.com/

These examples do not have linked returns (meaning the funds they show are assumed to have been held since the beginning of the portfolio. In reality, the funds may have changed several times. To account for these switches, the returns have to be linked.

Cost $5 per data point

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