Choose a benchmark before comparing portfolio returns

Match the comparison to the mandate

Match dates, base currency and dividend treatment. Compare total return with total return rather than a portfolio including income against a price-only index. State whether returns include fees and taxes. A benchmark index is a calculation; an investor generally incurs costs when trying to replicate it.

Cash contributions must not be counted as investment gains. Time-weighted returns isolate the effect of investment performance from external cash-flow timing; money-weighted returns also reflect when the investor added or withdrew money. Choose the metric that answers the question and label it.

Worked example: a 60/40 reference

Suppose a fictional policy portfolio begins a year with 60% equities and 40% bonds, without rebalancing during that year. If the equity benchmark returns 12% and the bond benchmark 3%, its blended return is 0.60 × 12% + 0.40 × 3% = 8.4%.

An actual portfolio earning 7.6% trails this comparison by 0.8 percentage points. Comparing only with the 12% equity index suggests a 4.4-point shortfall but ignores the defensive allocation. Before attributing the 0.8-point gap to selection skill, examine fees, cash balances, currency exposure and deviations from the policy weights.

Risk and rule changes affect the verdict

One year of outperformance does not establish skill, particularly if achieved with greater leverage or concentration. A benchmark changed after a weak result can hide the original objective. Rebalancing frequency also matters: the simple weighted calculation above does not describe a continuously rebalanced multi-year portfolio.

Align chart dates and return definitions

Inspect available closed daily, weekly or monthly bars over matching dates to compare the timing and severity of price declines. Verify separately whether each price series includes distributions. Student Wyckoff Pro supports available closed-bar analysis; portfolio cash-flow accounting and a blended total-return benchmark need their own documented records.

Primary sources

Sources explain the mechanics and limitations; the editorial examples use invented numbers rather than market quotations.

• Updated Investor Bulletin: How to Read a Mutual Fund or ETF Shareholder Report

Sources checked: 2026-10-23