Claire Corlett

Fish Food, Fish Tanks, and More

The Importance of Having a Benchmark | Ken Fisher | Fisher Investments [2019]


You’re driving down the road, it’s dark. You’re a little bit old, so your eyesight
is not as good as when you were 23. Suddenly, you dip down into a valley
and there’s a lot of fog. Hard to know where you are.
Hard to know where you’re going. What do most people do?
They slow down. What would help them? Well, we know what would help them. Painted lines on the road
to keep them in-between, brightly colored reflectors, lights. What are all those?
Those are benchmarks. Those are benchmarks
to help you stay on track. The fundamental feature of using
a benchmark in investing, regardless of the type of investing
that you’re trying to do, is that it actually helps you focus
on where you’re supposed to get to and how you’re doing
relative to getting there. So, for example, we could think about
benchmarks for the U.S. equity market, like the S&P 500, or fixed income, whether government
or corporate or a combination, or cash management, or putting together a portfolio that has
all of those in-proportional pieces. The benchmark still helps you see, “Am I getting where
I’m supposed to be going to based on my plans, or not?” And then I keep thinking about
the benchmark because I have the benchmark,
so it’s not just a measurement tool, it’s also a portfolio management tool, because you keep thinking about
the pieces of the benchmark and not letting yourself vary
too darn much so you don’t shoot yourself in the foot by taking your vehicle in that foggy night and running it off the side of the road
into a ditch, which is the most important part. The road will get you where you need to go if you can just stay in-between the lines.

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