How do you check the performance of your investments? In this week’s episode of The Invested Dads Podcast, Josh and Austin sit down and have a conversation about benchmarks. They discuss the different types and answer key questions in this area and how to choose one that is right for you. This is an episode you won’t want to miss!
Main Talking Points
[0:54] – Benchmarks Disclaimer
[2:41] – Different Types of Benchmarks
[11:52] – Dad Joke of the Week
[12:22] – How Should an Individual Choose a Benchmark?
[18:42] – Q1: Should You Use a Benchmark?
[19:31] – Q2: What Benchmark Should You Use?
[20:19] – Q3: How Often Do You Check Performance?
[21:13] – Q4: Rebalancing In Benchmarks?
[23:44] – Q5: What to Do When You’re Not Hitting the Benchmark?
[26:30] – The Role of a Financial Advisor
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better, helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. Today, we are going to be talking about how to select and track your investment performance versus a benchmark, as well as how that relates to your progress towards your financial goals.
Josh Robb:
Benchmarking. That’s what happens when you’re not good at sports? That’s like… You’re sitting on the bench the whole time.
Austin Wilson:
Sounds like you have some personal experience with this.
Josh Robb:
Yeah, like my baseball career. Or no, you know what? That’s what happens when I take my dog for a walk and we go to the park. He marks all the benches. Benchmarking.
[0:54] – Benchmarks Disclaimer
Austin Wilson:
No, actually, Josh, we are going to be talking about comparing your investment returns to something else, really a lot of things, to gauge how they are performing. So I guess let’s open it up to some overall talking points about benchmarks.
I guess I want to start with the disclaimer that no benchmark is perfect. So like your financial portfolio, there is no benchmark that is perfectly going to represent the way you should, quote unquote, I’m doing air quotes and you can’t do that in a podcast, the way that your investments should perform. Because if that was the case, you should just buy the benchmark. So things are very different, but this is kind of an overall gauge and just a directional kind of to see where you’re going.
Josh Robb:
Yeah. And it’s not perfect too, because actual benchmarks like indexes, which we’ll talk a little bit about the different types of benchmark, there’s no fees involved to that. And even as cheap as you can get with ETFs, there’s still a little fees in there. So there’s never a perfect benchmark.
Austin Wilson:
… and you can not actually buy a literal index. You can buy an ETF that gets dang close. It will never-
Josh Robb:
… but there’s a fee involved in there.
Austin Wilson:
There’s the fee and even the benchmark is not a hundred percent right. You might get 99.9, or whatever. So yes, no benchmark is perfect. And also when you’re looking at all of your different accounts and all of your different investment vehicles that are there for different purposes, and you might have different accounts invested in different ways, it’s okay to have different benchmarks for different accounts, different benchmarks for how those accounts are invested, because they’re all going to be looking very differently over time.
Josh Robb:
And it could change over time. Yeah.
Austin Wilson:
Exactly. So benchmarks do not have to be static at all. You can change them as needed as your investment strategies change. Typically, as you go through your working and saving years into your retirement years, benchmarks are going to change a lot because your investment strategy is going to change a lot.
[2:41] – Different Types of Benchmarks
Josh Robb:
So I bet you have an absolute favorite benchmark out there.
Austin Wilson:
Well, I mean, besides the bench that your dog pees on. I have a lot of benchmarks that I like to think about because we live in this world where data is pretty easy to come by and that’s not always been the case. So I mean, think about it, 10, 20, 30 years ago, there was no exchange traded funds. You pretty much were like, “Hey, how did the S&P 500 do?” Like, that was pretty much it. And you couldn’t really dig into all of the constituents of all of what was in there-
Josh Robb:
… the buildup. Yeah.
Austin Wilson:
It was a lot harder. But nowadays, we have access to what’s called ETFs or exchange traded funds. And if you don’t know what that is, check out our recent episode where we talked about mutual funds versus ETFs. We dig into that a little bit more and we’ll link that in the show notes below. So overall, I prefer nowadays using ETFs as benchmarks because the data is real time. It’s available in many places, mostly for free. And it’s awesome. So I have a list of ETFs that if you want to compare your portfolio that is invested in a similar way to what these are representing, that might be a good fit.
Josh Robb:
And the other benefit to that, too, is you can get information, like you said, on these ETFs free. I mean, you can go to Yahoo Finance, Google… You can go anywhere and say, “I need to know some more about this ETF,” which if you use that as your benchmark gives you a lot more data. You don’t have to just wait for it to scroll across on CNBC or something and say, “Okay, there it was. I missed it.” You can pull information, you can track it, you can use it efficiently.
Austin Wilson:
And another thing about specifically the ETFs I’m going to mention is if you… This is a topic for another day, but if you’re an advocate for passive investment, these ETFs literally are the passive vehicle to control that chunk of what you’re trying to target. So these are maybe some ideas if that’s kind of what you are looking for. They’re also very, because they’re very high level, very general indices representing ETFs, they’re very affordable. The expense ratio is very, very low. So here we go. If you are looking for a benchmark for a US equity, large cap blend, so like not value, not growth, kind of a blend, I would recommend using something that represents the S&P 500. And I think of like SPY is the the spider ETF for that.
Josh Robb:
And so when we say large cap, that’s companies that are large, so you think of an Apple or a company that has-
Austin Wilson:
Yes, large publicly traded companies.
Josh Robb:
… a lot of assets, which gives them a lot of value from a shareholder standpoint. So large cap means the capitalization of a company-
Austin Wilson:
… market capitalization.
Josh Robb:
And then blend, like you said, is a mixture of growth and value. Okay.
Austin Wilson:
So then if you want to get a little bit more specific, so maybe you’re younger and you’re targeting more growth because you can handle the volatility, because growth typically is a little bit more volatile. You can benchmark your portfolio to a large cap growth benchmark. And there is a benchmark that represents, it’s not the exact same thing, but it mirrors very closely the Russell 1000 Growth Index. And it is an iShares product that I’m thinking of. Its ticker’s IWF, and that is thinking… So large cap growth, as opposed to blend, growth is maybe they don’t pay as high or as many dividends. They’re reinvesting in their business to grow very quickly. Think of companies like Google and Amazon and Facebook and these really fast growing tech companies. I think of when kind of in that area. So that is the growth end of things.
So turn the page to value. And if you’re in a little bit more stable, established portfolio, you really want that high quality dividend paying, long term track record companies, Procter and Gamble’s and those kinds of things, Coca Cola, think of something like a US large cap value index. So think of the Russell 1000 value would be the actual index. The ETF that would represent that would be what I would think of is IWD, which is an iShares product that tries to mirror that. So very affordable ways to get that US large cap exposure between those three.
Now small caps, so smaller companies, in terms of market capitalization, I would look at something like the Russell 2000 as the index. So you’re opening up from the 1000 largest traded companies in the US to the 2000. So you’re getting a lot smaller on the end of a publicly traded companies there. And that I would think of IWM, which is an iShares product that tries to mirror the Russell 2000. So that’s US small cap, and that’s kind of a blend also of growthy and value within the small cap space. So as far as US benchmarks go, those are the ones that come to my mind. Now take a step back. And this is one of my favorites because Josh has a thing for tickers.
Josh Robb:
I like it.
Austin Wilson:
Global equities. So US and the rest of the world.
Josh Robb:
Everybody.
Austin Wilson:
The whole world global, the ticker is URTH.
Josh Robb:
Earth.
Austin Wilson:
I knew that ticker-
Josh Robb:
Love it. Love it.
Austin Wilson:
… and I knew that ETF for probably two years before I put together the fact that it was earth. I was like, what? I just thought it was URTH, but it’s the ACWI, which is… They’re a company that really puts together indexes and stuff like that. But it is the all world index. They use MSCI data for all of that.
Josh Robb:
You said ACWI. All Cap World Index. ACW-
Austin Wilson:
All country.
Josh Robb:
All country. Okay.
Austin Wilson:
All country I believe.
Josh Robb:
Okay, so are these just large cap then?
Austin Wilson:
So this is typically going to be larger cap. You can get into smaller cap and mid cap-
Josh Robb:
They have all that?
Austin Wilson:
… international equities as well. So that’s URTH. Think URTH, global, that’s URTH. International. So that’s excluding the US. If you’re a US-based investor, anyway, then you would say an international index would be excluding the US. So the same, All Country World Index, but using MSCI data, which is a data provider, they take out the US, so the ticker is ACWX, and that is excluding US. So it’s really the rest of the world. It’s not looking at US at all. So that’s international.
Josh Robb:
A good way of going between the two is when you see the word world, normally that means the US is included-
Austin Wilson:
Correct.
Josh Robb:
… And when you see international, usually it means no US and that’s how for a US investor-
Austin Wilson:
For a US investor-
Josh Robb:
You can tell the difference.
Austin Wilson:
Now, a lot of the things-
Josh Robb:
… if you see some of the world, you go, everybody.
Austin Wilson:
A lot of the things we’re going to be talking about are looking at it from a US investor perspective, because if you’re investing out of Thailand, emerging markets might be home or whatever. So it’s interesting. So anyway, that is global and international. Speaking of emerging markets, EEM is the ticker. Emerging markets, we also had a podcast episode about emerging markets, check that out. We’ll link that one down below as well. But if you have some emerging market exposure, you might want to compare to the EEM, which is the MSCI emerging market ETF, which represents the index there. So that is the equity side of things. So those are some just very easy to find, very affordable, very high level ways to compare some of your holdings to, or your account total, whatever to a broader index on the equity side of things.
Now let’s take a step to fixed income, and I’m thinking of like core. So you’re normal, you’re comparing this as your bulk of your fixed income portfolio. You could look at something like the AGG, the aggregate bond index, and that has a mixture of US treasuries, corporate bonds and those kinds of things, but US-based domestic there.
There are ways to get some exposure to international debt as well. I’m not going to focus on that today, but a very simple way to get some fixed income benchmark would be AGG is the ticker there. It’s one of the biggest fixed income ETFs in the world. If you want to compare some high yield holdings, so think of something with a little bit higher credit risk, but a little bit higher yield there. One that we like to look at is ticker, DHY, and it’s the Credit Suisse High Yield ETF, very widely used as well.
So that is one that you might want to look at there. For municipal bonds, I’m thinking of ticker, MUB, and that’s the muni bond. It’s like the… I think it’s iShares muni bond ETF there, and it’s very overall the whole United States. This is United States municipal bonds there. And those are increasingly attractive because of the tax treatment.
And then obviously, if you have some precious metals, which man, there’s a lot of podcasts we’ve done recently, but we did one on precious metals too. There are ones for gold and silver, and those are ticker, GLD and SLV. And those very, very closely track the movement of the actual underlying commodities there. Whew.
Josh Robb:
That’s a lot, if someone needs help on that, check out our website. We have the show notes in there, and those will all show up-
Austin Wilson:
Those will all be listed.
Josh Robb:
… in there in the show notes.
Austin Wilson:
And I’m not saying that those are the only ones, but those are the ones that I would look at if someone were to say, “Hey, Austin, what benchmarks should I use for my US large cap blend equity portfolio?” All right Josh.
[11:52] – Dad Joke of the Week
Josh Robb:
All right.
Austin Wilson:
That’s a lot of talking that I’ve done.
Josh Robb:
That was a lot.
Austin Wilson:
I need you to give me your best shot at making me spit my water out on my iPad.
Josh Robb:
Okay. So do you know what day of the week you cry the most?
Austin Wilson:
I mean, for me it’s Monday, but…
Josh Robb:
You’re close. Some people guess Monday, some people guess Sunday, but it’s actually the day before that, which is a Saturday.
Austin Wilson:
Saturday.
Josh Robb:
That’s it, that’s it.
Austin Wilson:
I never-
Josh Robb:
That is kind of a corny joke.
Austin Wilson:
It’s okay.
Josh Robb:
It’s good.
[12:22] – How Should an Individual Choose a Benchmark?
Austin Wilson:
Write that one down. So Josh, we’ve kind of talked about some specific examples of some options that you can compare your portfolio to, but what should an individual use? Like these are just options. How should an individual go about choosing a benchmark? What should they use?
Josh Robb:
Yeah. So what all Austin said is right. Those are great ways of tracking the performance of different groups or asset classes. As an investor though, the question is, what do I need to do to know if I’m on track? And so there’s kind of two fold to that. And what Austin was talking about, those track different investment pieces. And if you have those pieces in your portfolio, you can use that or a combination of those to track the performance of your accounts. Great. But how do I know if that’s worthwhile? Like if you’re really benchmarking to a standard and that’s really the whole point of this is I need a standard to know if I’m doing what needs to be done to meet that expectation. So for clients, as a financial advisor, the benchmark really needs to be not a ticker that you can track, but a number that’s set from your financial plan to help you achieve your goals.
So a better way of saying that is, let’s take retirement as one of those pieces. You know, a full financial picture has a lot of it, but if we’re just focused on retirement planning, if I know I need X amount of dollars when I retire, and I know where I’m starting from, we can back into how much do I need to earn based on what I’m going to be adding to get to that point so that I can retire whenever I want to? That’s the number. That becomes your benchmark. That’s the actual real value to benchmarking is knowing what you need to do because every person is different. So an example would be, let’s say doing all that financial planning, I know I need a 6% return on average throughout my working career to have enough saved so I can retire. That’s my benchmark, that’s the bogey, so to speak. That’s what we’re targeting.
And then I can then say, “Okay, how do we build a portfolio that historically has gotten above 6% return after fees, after all that, to then give me the best chance of beating that benchmark that I’m now targeting?” It doesn’t matter whether it’s the S&P 500, that AGG or whatever you’re including in there. Those pieces hopefully will combine to give you that return that you’re tracking. And so somebody may say, “Oh, you know what? Last year the S&P was up 30%. I didn’t do 30%.” Well, that might be because you didn’t need all that risk. And so did I fail? No, actually, if I’m still meeting that objective and I’m averaging that return that I need to, then I’m beating my benchmark and achieving my goals. And that’s, I think, the hardest part to separate is you have that desire to always keep up with the Jones’s. You hear your friend talk about how great they did on such and such and you’re thinking, “Well, I didn’t do that.” Well, your objective and your friend’s objectives may be different. He may need that type of return to get where he needs to for his goals.
And so that’s always the key is when we talk to our clients, it’s the idea of let’s set an expectation and a benchmark that makes sense for your situation. Here’s how you judge your performance. Here’s how you judge your advisor. Here’s how you judge your success based on what you need to get to your goals,
Austin Wilson:
And those benchmarks and that requirement is going to change over time. So as you go through your working career, obviously, for example, you’re 25 years old and you’ve got 35 years or whatever, until you want to retire. Retire at 60. You need a hypothetical million dollars. You know that you need to put in X number of dollars a month or X percent of your pay per month, and you build in a lot of assumptions, and you need to, on top of that, earn 8% or whatever you want to do. So that’s what you want to do, but as you get closer to retirement, and if you’ve already achieved all of that, maybe you’re a little ahead. You can pull off some risk off the table because that money is more close to being needed than it has time to grow. And that is that. And so, as you adjust your portfolio, how it ties back into benchmarking is your benchmark would have to adjust as well. So these are things to keep in mind as, as your needs change.
Josh Robb:
Yes. And like we mentioned before, you may have multiple goals. So let’s say I’m saving for college. That benchmark is going to look a little different because I don’t have 30 years to save for it. I have 18 years if my kid’s just born. I may have 10 years if I’m starting a little bit later. That has a different objective and that return, that benchmark, has to be tracked differently. And, if you look at some of those target date funds, the stuff they use for retirement plans, that slowly adjust to be less conservative, right when you get to college, because you’d hate to be heading to college and have a 35% drop if you’re all in the stock market and say, “Oh man, I just lost two semesters worth of my savings or whatever.”
And so, yeah, you’re right. And there may be short term goals where you’re saying, “You know what I’m saying for a down payment. My expectation is I need to maintain the value instead of grow it. So my benchmark may be 2%. That’s my benchmark. And I’m going to benchmark accordingly because I’m not going to take risks. I shouldn’t be mad if I underperform the S&P 500 that year. Well that’s okay because I didn’t want anywhere near the risk of the S&P 500.”
Austin Wilson:
I feel like like benchmarking can lead to some dangerous areas if you take it too literally as you have to outperform the market, every single quarter of all the time. I feel like that is how you can… Maybe you are working with an advisor and you ask your advisor, even against what they’re really saying, to say, “Hey, I need to get all this risk, or I need to get all this return.” And you’re going to take additional risk that you don’t need to take. And just because you’re not hitting the S&P 500 or whatever. So I think that’s a dangerous thing.
Josh Robb:
And the other thing along with that is, I’m talking about averaging of return, because we know you don’t get the same return every year. And so you may have a good year where you beat it and then you have another year where you underperform that number, whatever that number is. But you need to know over the long run, three, five, 10, 15 years, am I averaging above what that target is? Because that’s the key, because there is any given one year… Who knows what the S&P 500 is going to be? Who knows what the world index is? Who cares? Because any one timeframe shouldn’t matter as much as the longer term investing that you’re setting yourself up for, for that compounding that growth.
[18:42] – Q1: Should You Use a Benchmark?
Austin Wilson:
So Josh, you’re a pretty smart guy. You’re a CFP. You got your thing going on. You’re pretty good at your job. I have five-
Josh Robb:
Five questions.
Austin Wilson:
Five questions. Big questions about benchmarking from your perspective. Okay. Number one, should you use a benchmark?
Josh Robb:
Yes. Yes. You definitely should. And like we said, it’s kind of a twofold. So one benchmark is, how am I doing towards my goals? The second piece of that benchmark is, how is my advisor or whoever’s managing my… Maybe it’s me, who’s ever managing money, how are they doing compared to what they should be doing? So, yeah, that’s where you do pull in like an S&P 500 or something and say, “Okay, if this piece of my portfolio is US growth or blend or whatever it is, here’s how the average did. How am I compared to the average?” And again, you got to factor the fees in and all that, but where am I sitting along that?
[19:31] – Q2: What Benchmark Should You Use?
Austin Wilson:
So question number two, what benchmark should you use? And I feel like that’s a loaded question already, as I say it.
Josh Robb:
Yep. The benchmark you should use…
Austin Wilson:
It’s different for everyone.
Josh Robb:
Is different, but it’s the one that most closely represents what you’re trying to achieve. And so if you have a 60-40 portfolio, you could very simplify, you know, 60% in some sort of equities, whether that’s S&P 500 or the all world, if you have international. You find something in 40% in fixed income and say, “Okay, that’s as close as I can get without bogging my time down, trying to be too precise.”
Austin Wilson:
And I think, especially if you’re doing more of this yourself, keeping it simple is-
Josh Robb:
Simple is the best. And this, again, the benchmark is just giving you the idea what the average is doing. And then that’s where you’re going to track yourself to.
[20:19] – Q3: How Often Do You Check Performance?
Austin Wilson:
Number three. How often should you check your performance versus your benchmark?
Josh Robb:
So that probably flows into your next question, but you should check periodically, especially if you’re going to be making decisions. And so really you only need to know how you’re doing to your benchmark is if you’re looking at rebalancing, reallocating or reviewing your goals.
Austin Wilson:
So looking at it daily could be counterproductive because your portfolio might not be up the full 0.4% the S&P was up that day or whatever. That’s pretty irrelevant in a one day move. But over the course of-
Josh Robb:
Yeah. So semi-annually, quarterly maybe. Just a quick review just saying, “Is there something drastically off?” If there’s something… Like, for instance, earlier this year, it wouldn’t hurt just to check periodically, just say, is there anything weird in my portfolio that’s doing something that I didn’t anticipate or don’t want. And kind of reviewing it that way. But from a high level, it’s-
Austin Wilson:
Less is more.
Josh Robb:
Yeah, less is more.
[21:13] – Q4: Rebalancing In Benchmarks?
Austin Wilson:
I mean, that’s a great point that you brought up and it kind of leads me into my next question. So I’ll ask the question and say a comment before I get your answer. Rebalancing, you mentioned that, how is that involved when it relates to benchmarks? And then I was just thinking, so rebalancing, very important as it relates to benchmarks and your overall picture. And actually, if you would have had a 60-40 portfolio in the first quarter, and you looked at your portfolio at the end of the first quarter, you were not 60-40 all of a sudden, but if you would have reallocated back inequities at the end of the first quarter, you would have smoked it after that. It’d be awesome. That’s what rebalancing does for you.
Josh Robb:
Yes. Yeah. So the benefit of rebalancing, and we’ll probably do a whole episode on some of those pieces of managing a portfolio down the road, but rebalancing keeps you to the allocation you had originally had set. And so over any timeframe, one year, three, five, as different asset classes performed differently, your allocation will get slightly out of whack. You need to set up some sort of idea of how much wiggle room do I give my portfolio, right? How much do I allow my portfolio to drift? So that maybe I was 60-40. Will I let it go to 65? Will I let it go to 70-30? How far will I let it go before I kind of triggered this look? And we always say again, whether it’s quarterly, semi-annually, annually, doing a quick look at it, again, it doesn’t have to be too often. Again, if you have the tolerance and the threshold…
Austin Wilson:
To Rebalance weekly.
Josh Robb:
Yes. There’s no point.
Austin Wilson:
Or daily or whatever.
Josh Robb:
It’ll hurt you in the long run if you’re constantly tweaking the portfolio.
Austin Wilson:
Because there’s phases where things do well and things don’t do well. And you kind of miss out on some of the good news if you’re doing it too often, but you’re also helping yourself when things fall apart.
Josh Robb:
Yeah. Normally rebalance is selling the things that did well, buying the things that underperformed. So you’re always selling at highs and buying at lows, which is part of the whole long-term process. But rebalancing fits in to the benchmark discussion as well as, “Okay. Am I drifting farther?” If you’re underperforming the benchmark and you have a good benchmark to track too, it could mean your allocation is off. So if you set your 60-40 benchmark, they only reallocate benchmarks once a year. Most benchmarks only do a rebalance once a year. And so that’s the often they look at it. If you set that and yours is slightly off, maybe your holdings have drifted farther than the benchmarks. And there will be at least a reason to do a little deeper analysis.
[23:44] – Q5: What to Do When You’re Not Hitting the Benchmark?
Austin Wilson:
So what should you do, question five, if you consistently do not hit your benchmark?
Josh Robb:
Yeah. The first thing I would do is make sure it’s the right benchmark because if I’m always under performing the benchmark, the first question is, did I put the right one in? Because you could very easily think, okay, for instance, going back to what you were talking about, let’s say I have a lot of dividend paying stocks this year or the last couple of years. And I look at the S&P 500 or something like that, or the NASDAQ and say, “Man, I am not doing well.” Well, what’s happened recently is any kind of value oriented stock has underperformed growth stocks. So if all I own are dividend stocks and I’m comparing to the S&P 500, which they’re all stocks, that’s all stocks, seems to match.
Austin Wilson:
Should be the same, right?
Josh Robb:
Yeah. And I’m not. So now I’m 10% off. What is happening? Am I really failing in my stock picking? Maybe. Or maybe you just have the wrong benchmarks. So first thing is double-check your benchmark. There’s some technical terms you can get into on how to tell if your benchmark tracks well to yours, but in general, if you’re constantly under performing, that would be a valuation. The second one would be though, if I’m underperforming, maybe I do need to review my holdings. And if you have an advisor, that conversation with advisor, what are you doing? And why am I underperforming? There may be an answer to it that you don’t understand. For instance, well, you know, you’re looking at S&P 500 and we’ve underperformed because we’re not allowed to hold X stock because we’re restricted from it or something like that.
Austin Wilson:
Yeah. I’m kind of thinking like suppose you are… Your advisor has really high conviction. You trust this advisor. They have really high conviction that, “Hey, some of this growth stuff has gotten a little bit overvalued. It’s a little stretched. So we’re intentionally under weighting it. Because we think that this value thing is going to pick up some speed and that the growth continues to do well for a little bit before that happens.” That could be a period where it’s very explainable. The advisor made a decision based on conviction and data. And that just happens sometimes. People are not right all the time. The timing of the market, as we all know, is hard. It’s impossible to do perfectly.
Josh Robb:
Yes. And too, if you’re comparing your performance again, look at longer terms, because again, any day the market could be up or down, it’s 50-50. And so if you’re just tracking for your visor, your own investment and saying, “Oh, look I underperformed today”. Well, give it some time. And so, look three, five, 10 years. And that’s really a good time for him to say, “Okay, if the last three, five or 10 years, I’ve consistently underperformed, something needs to be adjusted.” Whether it’s the benchmark, your holdings, the advisor, something like that needs to be evaluated.
[26:30] – Having a Financial Advisor in Benchmarking
Austin Wilson:
So you brought up a good point. You are a financial advisor, you work with clients all the time, talking about this and benchmarking and financial planning in general, how is having an advisor on your side an asset in this process?
Josh Robb:
Yeah. The first one is setting that goal. You have another independent person who has an objective opinion, so they could say, “Okay look, here’s what your goals are. Here’s what you’re trying to get to. Here’s what I think is the best route to get there.” And so you’re just getting a second opinion on that process. And so they’re helping you set that benchmark, set that objective up with you. And so you have more people, more heads in the game here, more people thinking about it. You have someone that’s an expert, hopefully, in their field and they understand diversification and they understand different asset classes and how that all fits together. Because again, if you’re just choosing a benchmark, they may be better able to explain here’s what a real benchmark should look like. You should have 10% of this in here.
They could help you track it more efficiently. And then finally, the advisory can help you evaluate that and say, “okay,” and if you have an honest advisor, they may say, “Hey, look, I made a wrong decision here. We underperformed because I thought, such and such asset class was going to do well. It hasn’t yet. It might still, but this is why we’re at.” If you have the honest conversation, again, even if you underperform a benchmark, you may still be on track for your goals or make the adjustments there accordingly, but a financial advisor’s there as a another person looking at it from a different perspective with hopefully some more expertise in that situation.
Austin Wilson:
And that’s probably something that if you look at things too frequently or too closely or too short term. So if you’re like, “Oh my goodness, one quarter or even one year or whatever, we had a rougher year or whatever,” if you have an advisor that you work with that you trust, that might be… That’s not enough time oftentimes to say, “Hey, something’s really wrong.” Especially if it’s justified, like you had just talked about.
Josh Robb:
I think the stat is for managers that outperform over a 10 year period, three of those 10 years they underperform. And so if you kind of think about that way, you may be in a period where a good manager is underperforming for a short period of time, but yet in the long run, they’re still going to provide you with that beating that benchmark or beating that objective.
Austin Wilson:
And if you think that an average retirement saving period is 30 some years, that’s three, 10 year periods. And there’s going to be times where you’re quote unquote underperforming, right? You’re underperforming the number on the page-
Josh Robb:
Whatever you put it on there, yeah…
Austin Wilson:
… But you might still be great on track to meet your goals. And that is what is key right here.
Josh Robb:
Yep. Because you could always say “My fixed income has never beat my benchmark of the S&P 500.” Okay. That doesn’t even make sense. It just really depends on what… Yeah. You set that number up and make sure it’s a good number.
Austin Wilson:
So Josh and I want to let you guys know, as our favorite listeners, each and every one of you, that we are here for you. And we talk about working with a financial advisor all the time and having a financial plan and we really feel like that is a huge part of being successful and whether that’s saving for retirement or whatever you want to do with your money, longterm. That is huge. So first of all, we want to recommend that everyone just talk to an advisor, work with an advisor that you trust and that you like, and that is knowledgeable and credentialed and does well.
But second of all, if you don’t have one, we want you guys to know that we’re here. And if you want to talk to us, we have a page on our website called Invest With Us. So you can check that out and you can schedule a call and we’d love to hear from you. We’d be happy to point you in the right direction or help you out if we can. We just would love to hear from you either way. But we think that having an advisor is definitely an important factor in longterm success of financial planning.
Josh Robb:
And as you go along that process and are evaluating where you’re at currently, we have on our website kind of a free gift. It’s Eight Principles of Timeless Investing. Those help you along the way as you’re looking through where you’re at and what changes you might need to make for your situation. So make sure you get to our website, grab that, it’s free. And then also, Austin, how else can they subscribe and help this podcast?
Austin Wilson:
Yeah, so obviously we would love it if you’d continue to join us every Thursday when we publish these episodes. So if you’d subscribe, that would be amazing. We’d really appreciate it if you’d leave us a review on Apple Podcasts and always feel free to email us any ideas or questions to hello@theinvesteddads.com. And if you enjoyed this episode or know someone that might find it interesting, hit that share button and share it with your friends and family. All right.
Josh Robb:
Well, we will look forward to talking to you, or with you, next week.
Austin Wilson:
That’s right. Thanks. Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
