A 3% return could be good enough in a bear market, and a 10% return might be mediocre in a bull market. How can you readily know how your investments are performing?
LOOK AT YOUR RELATIVE RETURN
Relative return is the return an asset or investment achieves over a period compared to a benchmark e.g., an index). It’s important for actively managed accounts because it measures investment performance. Actively managed investments should strive for a return greater than the market.
COMPARE APPLES TO APPLES
Use the right benchmark for the investment. Here are some popular stock indices: the S&P 500, considered a good measure of the US stock market at large; the Dow Jones Industrial Average, for large-cap stocks; the NASDAQ, heavily weighted in the technology stock sector; and the Russell 2000, for small-cap stocks. There are countless more US and global stock indices at your disposal.
For bond investments, look at indices that follow markets specific to your bonds, such as corporate, government, treasuries, “junk” bonds, and international bonds.
Remember that benchmarks simply show how an investment measures up against past performance, and past performance doesn’t guarantee future results.