In this episode is the topic of the investing benchmark. 

In the investing sense, we want to beat the benchmark. When we can’t beat it, then we want to invest in the benchmark. Write that down in a journal as that is the most important detail. If we can’t beat the benchmark, we want to invest in the benchmark.

As a client, you want to see the performance of your portfolio against the benchmark. This is how your financial advisor demonstrates his or her accountability.

If you don’t see how your investment performs in comparison to the benchmark, then you have to assume you are underperforming the benchmark. Thinking otherwise is like drinking the kool-aid.

Next, you want to know how your financial advisor constructs the benchmark.

You want to see a benchmark constructed with a few indexes as that is a demonstration of sophistication. You also don’t want to see too many indexes as the theory of the design goes beyond what you can comprehend. When it gets confusing, it feels like you are drinking the kool-aid once again.

Lastly, the benchmark needs to be assessed in the short term and the mid term.

The objective is to outperform the benchmark in the mid term with outperforming the short term benchmark more often than not. In the short term, there are swings in performance relative to the benchmark. It’s unavoidable. Patience in the short term is where success is found. 

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