InvestorQ : What is meant by benchmarking your portfolio and how can I as an investor do the same on a continuous basis?
Priyanka Jain made post

What is meant by benchmarking your portfolio and how can I as an investor do the same on a continuous basis?

Answer
image
rhea Babu answered.
2 years ago
Follow

Benchmarking is all about comparison. You are as good or as bad based on how your peers are doing. The same logic applies to your portfolio of stocks too. In a bad market when the index is down 10%, you are not expected to give a positive return of 20%. At the same time, when the index is giving 20% in a year, you cannot be earning 4% in your portfolio. That is why regular benchmarking is important. Benchmarking is done with the peer group or competing portfolios or with a passive index like the Nifty or the Sensex.

You need to remember that the long term is nothing but a compilation of a series of short term performances. Hence it is very important that your portfolio is constantly either at par or better than the benchmark indices. If you are at par with the indices for too long, there is something wrong with your portfolio. An index fund could have done this job as effectively, then why the risk of equities? If your portfolio is consistently underperforming the index try to find out why. Occasional underperformance is understandable in a long term portfolio. But if your portfolio is a consistent laggard, then the alarm bells must start ringing. After all, if you have got your portfolio composition wrong, or if you are holding stocks in the wrong phase of the cycles or if you are holding stocks that are being disrupted by other stocks, then you are likely to underperform unless you seriously revamp your portfolio.

0 Views