Last week my Short & Simple Investing lesson explained how to use benchmarks to evaluate your investment choices. This week I want to expand on that hugely important topic a little more. Once you understand and begin using benchmarks, you are definitely on your way to financial empowerment.
Now that you know about the benchmark, you can be on the lookout for the benchmark that applies to your specific investments to help you monitor them. Don’t feel like this is a huge task; there are usually a just few very common benchmarks that are used for most stock and bond funds. For example, for most large company stock funds, the benchmark is simply a stock index, or group of stocks called the S&P 500, that may be familiar to you. By simply comparing how this index performed against your stock fund, you have some extremely valuable information. Bond funds get a little more complicated due to the varying maturity lengths, but for now, embracing the benchmark concept is a big step toward financial empowerment.
Using the benchmark to measure investment performance is simple because the benchmark is not hard to find. This information is almost always in the marketing material for both mutual funds and privately managed funds. Because of this, when you are reviewing information about a fund you already own, or are thinking of buying, you can look at the material and easily see how the investment performed in comparison to the related benchmark.
Monitoring and evaluating the performance of your investments is paramount to successful investing and the benchmark makes this simple. Benchmarks are one of the many topics we’ll delve into more during the upcoming core curriculum for members at the Financial Woman Alliance for Investment Education. Be sure to learn my 3 Step Action plan toward financial empowerment and also hear about hear about the alliance benefits on my free upcoming call. Make 2011 the year you choose financial empowerment!
