Performance March 22, 2016

    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 includes 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 just because one asset class has been doing well recently that you should hold more of it, or that because one has been doing poorly that you should avoid it.

    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 ensures that you hold the top-performing asset classes at any given time while not being overly concentrated in the bottom-performing asset classes.

    Schwab Intelligent Portfolios™ offers a new way to track performance

    With Schwab Intelligent Portfolios, we want 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 allocation providing an individual source of risk and return.

    U.S. large-cap stocks, as represented by the S&P 500 Index, are just one potential risk/return driver. So we've introduced a new feature on the Performance section of the 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
    Barclays US Corporate Credit Index U.S. investment-grade corporate bonds
    Index Name Asset Class
    Barclays Global Aggregate ex-US Index International bonds
    S&P GSCI Precious Metals Index Gold and other precious metals

    Example: Comparing a portfolio to five market indices

    This portfolio underperformed the S&P GSCI Precious Metals index, which saw significant gains in the early part of 2016. However, the portfolio outperformed the U.S. large-cap index, the U.S. small-cap index, the international large-cap index and the index for U.S. investment-grade corporate bonds.

    Example: Comparing a portfolio to five market indices

    Source: Schwab Wealth Investment Advisory

    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.

    Past performance is no guarantee of future results.

    Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

    (0316-DR0L)


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