Use This Benchmark To Measure Your Investments Performance

Many professional money managers will provide a benchmark to their clients as a way to measure their performance.  This is certainly better than the old days when an investor had no clue as how well his/her money manager was doing.  The problem with this new approach though is that the benchmark is basically meaningless.  How is the benchmark determined, first of all? By the folks you are paying to manage your money? doesn't that seem a bit disingenuous at the outset? Think about it like this. I'm a professional football coach. The owner wants to know how I did  last year. Thankfully, I get to pick the benchmark to compare my performance.  So, what do you think I'll use? The Cleveland Browns of course! The investment world is not that far removed from this type of performance comparison.  THEY choose the benchmark.  Yeah, it will be more legit than my football analogy above.  But still, how do they get their benchmark? Is the benchmark something I can invest in directly?  I've seen benchmarks as precise as 8.62% in small cap value stocks. 11.58% in International developed stocks etc. How do they get their percentage of asset classes within the benchmark?  What relevance is it to me that their benchmark is that precise? Even if they "beat" their benchmark, what exactly does that tell me? Well, nothing actually because the benchmark is a theoretical abstraction not based in reality whatsoever.  A better solution is to use something that does exist, something I could actually invest in if I so desired.  And that is why I love the Vanguard Lifecycle funds for a true benchmark.  The example I use in this video is the Vanguard LifeCycle Growth Fund. This fund charges all of .14% expense ratio.  It has a ticker too, meaning I can invest directory in it.  It also is as simple as can be, only 4 holdings. Total Stock Index. Total International Index, Total Bond Index, Total International Bond Index.  The performance numbers are there for all to see, as clear as day.  If you are an aggressive investor, did your investment manager beat this fund, NET OF FEES?  If so, and if he/she does it consistently, year over year, you're probably in a good place.   If not, well, you have some choices to make.