Keeping Track of Your Portfolio's Performance
Keeping Track of Your Portfolio's Performance
What's the best way to measure the performance of your portfolio?
All too often people simply look at their portfolio's returns relative to the S&P 500® Index. But while that might be the most familiar index to many investors, it's important to understand that the S&P 500 isn't "the market," as it's often mistakenly described. The S&P 500 measures just one market segment: U.S. large-cap stocks. And it's only a subset of that segment at that.
Don't simply look at the S&P 500 Index
Seen in that light, it's pretty clear that comparing your portfolio's performance to a portion of a single market segment isn't particularly meaningful. And for a diversified portfolio that might include international investments and other asset classes such as bonds, commodities and cash, it provides little guidance. An appropriate benchmark should reflect your portfolio's risk level and allocation.
A more meaningful analysis would look at several different indices to give you an idea of which asset classes have been helping or hurting. But keep in mind that asset classes come into and out of favor, and these shifts in leadership can occur rapidly. So don't think that you should hold more of an asset class simply because it's done well recently, or that you should avoid an asset class just because it hasn't kept up in the short term.
A better approach than trying to time markets is to invest in a diversified portfolio. This strategy is designed to help smooth return patterns over time by investing in multiple asset classes. This helps ensure that you hold some of the better-performing asset classes at any given time while not being overly concentrated in the asset classes doing less well at that time.
Schwab Intelligent Portfolios® offers a tool to track performance
Schwab Intelligent Portfolios is designed to give you a range of tools for understanding performance. Portfolios are diversified across multiple asset classes based on your risk profile from conservative to aggressive, with each investment in your portfolio providing an individual source of risk and return.
Keep in mind that all of the investments in your portfolio are working together to produce the portfolio's overall risk and return characteristics. So avoid the temptation of looking at any one asset class in isolation. In some periods, an asset class such as U.S. large cap stocks might be performing best while another asset class such as emerging markets might be at the bottom of the list. In other periods, the asset classes at the top and bottom of the performance rankings might be reversed.
U.S. large-cap stocks, as represented by the S&P 500 Index, are just one potential risk/return driver. So we include a feature on the Performance section of the Intelligence Portfolios website that lets you compare your portfolio's performance with several different market indices. We recommend that you select multiple indices (up to five at a time) from the following list:
|Index Name||Asset Class|
|S&P 500 Index||U.S. large-cap stocks|
|Russell 2000® Index||U.S. small-cap stocks|
|MSCI EAFE Index||International large-cap stocks|
|MSCI EAFE Small Cap Index||International small-cap stocks|
|MSCI Emerging Markets Index||Emerging market stocks|
|Bloomberg Barclays US Corporate Credit Index||U.S. investment-grade corporate bonds|
|Bloomberg Barclays Global Aggregate ex-US Index||International bonds|
|S&P GSCI Precious Metals Index||Gold and other precious metals|
Example: Comparing a portfolio to multiple market indices
As shown in the two charts below, comparing your portfolio's performance with several market indices and over different market environments can give you greater perspective. During the first quarter of 2019, the strongest single-quarter for the U.S. stock market in a decade, the diversified portfolio ('Your Investment Performance') didn't keep up with the S&P 500, as would be expected. However, the portfolio did better than some asset classes such as investment-grade corporate bonds and gold & other precious metals.
By contrast, during the fourth quarter of 2018, when the U.S. stock market saw a significant pullback, the portfolio declined less than the S&P 500. That's because asset classes such as investment-grade corporate bonds and gold & other precious metals delivered positive gains during that turbulent period, helping to moderate the overall portfolio decline. By taking a disciplined, diversified approach and including a variety of asset classes that perform differently in different market environments, the portfolio is designed to help smooth the ups and downs of investing.
Tracking progress toward your goal is more relevant
Comparing your portfolio's performance with a variety of indices can help you understand which asset classes have been driving performance. But an even more meaningful measure is to track your progress toward a specific investment goal. Our Goal Tracker feature gives you another tool for tracking performance, allowing you to set a savings goal or an income goal and then monitor your progress over time to help you stay on track toward reaching your financial goals.
And if you're looking for additional professional guidance to help you reach your goals, consider exploring Schwab Intelligent Portfolios Premium™. Our Premium Service offers all of the benefits of Schwab Intelligent Portfolios along with unlimited guidance and personalized planning from a CERTIFIED FINANCIAL PLANNER™ Professional, for a one-time planning fee of $300, and a $30/month advisory fee after that.
Just as if you'd invested on your own, you will pay the operating expenses on the ETFs in your portfolio—which includes Schwab ETFs™. We believe cash is a key component of an investment portfolio. Based on your risk profile, a portion of your portfolio is placed in an FDIC-insured deposit at Schwab Bank. Some cash alternatives outside of the program pay a higher yield. See important information below.