The Dividend Guy Investment Process Part 9: My Benchmark

If you are a do-it-yourself investor who buys individual stocks (i.e. dividend stocks), as many of my readers are, then we are slaves to our investment returns. But how do we know how we are performing? If we earned 12% last year, that may seem like a pretty good return. However, if the overall market provided a return of 22% then you didn’t do so hot. It would have been much better for you to have bought the market through an index fund or ETF. It is therefore important for investors to set up a benchmark that we can compare our performance to to gauge how we are performing.

The most common benchmark that investors track their performance to is the S&P 500. However, I do not completely agree with this since very few investors actually hold a portfolio that is 100% equities. It would make more sense to find a tracking mechanism that better matched the makeup of a true portfolio. I did that through the use of a Vanguard index fund devised by Vanguard.

The Vanguard Vanguard Balanced Index Fund Investor Shares seeks —with 60% of its assets – to track the investment performance of a benchmark index that measures the investment return of the overall U.S. stock market. With 40% of its assets, the fund seeks to track the investment performance of a broad, market-weighted bond index..

One other important thing to note is that I do not measure my portfolio results to the benchmark on a month-to-month basis. A properly structured asset allocation takes time to work and more important is how the portfolio performs to the index over a longer period of time – at least five years. That being said, I do monitor my portfolio yearly to ensure I am at least on the right track. The decisions I make in my portfolio are asset allocation based and ensuring my actual allocation is in line with my target allocation.

Next in the process series I will discuss my focus on reinvesting dividends for some compounding love!