By Rick Kahler via Iris.xyz
That question isn’t as simple to answer as you might think. First of all, “the market” isn’t easy to define. You can compare your investment returns to the Dow Jones Industrial Average, but that index is made up of only 30 large companies.
If your portfolio is properly diversified, it will include a much broader range of asset classes. My preference is eight or nine different classes held in index funds. A typical mix might include stocks from large, medium, and small companies in both the U. S. and foreign countries; international bonds; real estate investment trusts, commodities like wheat, gold, and oil; market neutral funds like managed futures; and Treasury Inflation Protected Securities. It’s not really relevant to compare quarterly returns on such a diversified portfolio to the Dow.
Instead, many professionals recommend a four-part method to evaluate your portfolio’s performance in a more meaningful way.
1. Take a long view.
The changes you see in a monthly or quarterly investment statement are purely the result of random movements in the market, what professionals call “white noise.”
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