Quarterly Portfolio Review – What a Difference a Month Makes

Although I do not post about it regularly, at least once a quarter I have a look at my portfolio’s performance to see how I am stacking up against the market. The reason is simple – if my portfolio is not at least meeting the returns of my chosen benchmark then I am failing as an investor. There is no reason for an investor to not expect market returns from their portfolio as the huge variety of index funds and index ETFs available make it very easy to build a “lazy portfolio“.[ad#tdg-embedded]

My Benchmark

I actually track my portfolio against two benchmarks in the Excel spreadsheet I use to monitor my portfolio. The first is the obvious one – the S&P 500. However I do this more out of interest as opposed to really comparing my performance. As my portfolio is not 100% equities, I find that it would be silly to compare my performance to a 100% equity vehicle. Kind of like comparing apples to oranges. Instead, I also compare my performance to the Vanguard Balanced Index Fund Investor Shares (VBINX).

The Vanguard Balanced Index Fund 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. My own personal portfolio is managed to very close to this asset allocation. I actually have a 64/36 split in my portfolio and as such, wanted to find a fund or index product that I could use to see how my chosen assets perform in comparison to the professionals. The VBINX fit that bill for me.

My Results to April 3, 2009

At the time of this writing (early April), the market has seen a huge rebound and my portfolio has also done very well. I am actually beating the benchmark on both annualized return and year to date numbers. It is important to note that the annualized number is only since October 2008 as I moved to tracking my portfolio in Excel because I did not trust the return numbers Microsoft Money was providing me with. Here is a graphical representation of my results:

It is also important to point out that typically I would not expect to beat the market by this much! The reason is simple to explain – my asset allocation is out of whack as my fixed income component is too light. Equities have performed very well in the past few weeks and my low fixed income allocation has been a blessing. However, that is a problem I am not comfortable having and am diligently adding to my fixed income assets regularly. When equities are on fire a lack of fixed income is ok, but in the down market we have just come through (and are probably not finished with) then that fixed income can reduce the volatility and protect an investor nicely. My goal is good returns at the lowest risk possible, and right now I have too much risk.