Saturday, March 21, 2009

Benchmarks or A Man's Gotta Know His Limitations

Today is an important day for me - I'm going to tackle benchmarks. I will not get done, my wife has yardwork waiting for me, but I'll get started and finish as the week unfolds. But, I guarantee I will blog enough today to keep you busy with your own financial homework.

First, I am not going to reinvent the 'benchmark wheel' here. For an excellent article of the value of benchmarks, please go to:
http://www.croftgroup.com/articles/benchmark.htm

These two chaps, Richard Croft and Eric Kirzner, designed three indices, which can be found on the Financial Times site at: http://www.financialpost.com/markets/market-data/indices-fpx-daily.html

There is an index for the growth investor (down 5.22%), another for balanced portfolios (down 3.7%) and a final one centred on income (down 1.09%) for folk like me. The nice thing about these three indices is they can be easily assembled in reality. Their make-up is transparent.

I may say income folk like me but the truth is I am a mix of all three approaches, like many investors. I figure if I am doing better than the growth index, I'm doing O.K. And today, Saturday, March 21, I am down 4.74% for the year. Ouch! But the FPX Growth Index is down 5.22% year to date (YTD). Easing the financial pain is the fact that I on my way, thanks to dividends and distributions, to being able to withdraw 4% or more from my RRSP without encroaching on my mutual funds or securities themselves. (But with the economy still in the grips of a bear, it is still anyone's guess how dividend and distribution cuts will affect my final cash holdings for the year ending in December.)

For another perspective on the success or failure of my portfolio I have put together a number of benchmarks based on the financial stuff that I have read. There's my Hi-Yield Lazy Dude, my Canuck Retirement Strategy, my Almost an ETF Classic, and my TD e-Funds Approach - more on these later.

Lastly, I enjoy following some of the stuff posted by Frank Russell. Frank posts Sovereign Sample Portfolios on the Web. YTD the posted conservative portfolio has dropped -5.54%, the moderate portfolio has dropped -8.21%, and the aggressive one has racked up a double digit loss of -10.54%. Do you use Frank? How do your results compare to these?

If you check out the Frank Russell LifePoints portfolios you will find that the balanced growth portfolio has lost -4.71%. Does that number look familiar? My portfolio is keeping up with Russell's herd of financial experts. This is comforting.

Frank's Sovereign site is:
http://www.russell.com/ca/Investor_Services/Sovereign_investment_Program/sample_portfolios.asp
Franks' LifePoints site (Frank capitalizes the P in the middle - too cutsey in my book.) is:
http://www.russell.com/ca/Investor_Services/LifePoints/default.asp

Return Monday and I'll tell you about my fun indices, their make-up and what they tell me about investing.

Cheers,
Have a nice weekend.

p.s. If you are interested in the books written by Croft and Kirzner, I read Protect Your Nest Egg and recommend it, click on this link:
http://www.croftgroup.com/books/index.htm

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