Stocks Analysis by Lance Roberts covering: S&P 500, US Small Cap 2000, US Dollar Index Futures, Legg Mason Inc. Read Lance Roberts's latest article on Investing.com
During ripping bull markets, investors often start benchmarking. That is comparing their portfolio’s performance against a major index—most often, the. While that activity is heavily encouraged by Wall Street and the media, funded by Wall Street, is benchmarking the right for you?Comparison-created unhappiness and insecurity are pervasive, judging from the amount of spam touting everything from weight loss to plastic surgery.
Investors who benchmark their index risk failing unless 35% of the portfolio is invested in those 10 stocks. With the market capitalization weighting of the largest companies nearing a record, taking on a 35% stake in those companies increases the portfolio’s risk profile significantly more than many investors think.A perfect example is Bill Miller from Legg Mason, who achieved 15 consecutive years of beating the S&P. That put him on the cover of magazines.
I don’t know about you, but investing in quality, actively managed funds over the long term seems a better bet. Crucially, they did it without heavily concentrated positions in just a handful of stocks.
More importantly, any portfolio allocated differently than the benchmark to provide for lower volatility, income, or long-term financial planning and capital preservation will also underperform the index.“But it gets worse. Often times, these comparisons are made without even considering the right way to quantify ‘risk’. That is, we don’t even see measurements of risk-adjusted returns in these ‘performance’ reviews.
US Small Cap 2000 US Dollar Index Futures Legg Mason Inc
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