Investing often resembles navigating uncharted waters. You choose a portfolio, allocate your funds, and then wait patiently for your investment to grow. However, the process ofcompound growthis gradual. According to theRule of 72, it typically takes around ten years for each dollar invested to double. This extended timeframe can foster doubts about the effectiveness of your investment choices, prompting questions such as, “Is my portfolio performing optimally?” It is natural to scrutinize your financial decisions, especially when comparing various investment portfolios, as multiple factors influence outcomes.
The structure of each portfolio, along with associated fees and tax implications, significantly impacts performance. When evaluating your returns against those of competing investment managers or widely reported stock indices, establishing a solid benchmark for comparison is essential.
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Establishing benchmarks for comparison
For context, our Core portfolio has achieved an impressive average annual return of approximately10%after fees since its inception. This statistic reflects the actual returns for Betterment clients, excluding the timing of their deposits and withdrawals, thereby focusing on the portfolio’s inherent performance. As of December 31, 2026, the composite annual time-weighted returns stood at 20.1% over one year, 9.3% over five years, and 10.1% over a decade.
Evaluating returns against stock indices
How does this10%figure compare to the broader market? The answer largely hinges on the metrics used for comparison. While indices like the S&P 500 and Dow Jones are frequently highlighted in financial news, they offer only a partial overview of the market. Notably, these indices exclude bonds, which play a vital role in many investment strategies by moderating volatility and preserving capital. Furthermore, popular indices often overlook international markets. For example, the S&P 500 encompasses less than half of the global investable stock market.
Conversely, our portfolios are globally diversified, which helps smooth the investment experience. Historical data indicates that both American and international assets tend to outperform one another in cycles every 10 to 15 years. Thus, including a modest allocation to international assets in your portfolio can position you to take advantage of shifts in market performance.
Understanding diversification and its impact
While numerous platforms offer globally diversified portfolios, not all diversification strategies yield the same results. Two portfolios with similar stock-to-bond ratios may produce markedly different outcomes due to factors such astax optimization, market timing, and management fees. Some investors attempt to assess performance by investing small amounts with various providers and comparing returns after a few months. However, this approach can be misleading and may not provide a comprehensive performance view.
Finding relevant comparisons
For investors looking to evaluate their portfolio’s performance, consider comparing it against two specific exchange-traded funds (ETFs) designed to track a broad market segment: ACWI for stocks and AGG for bonds. By accessing the Performance section of your Betterment account, you can easily compare your portfolio against these benchmarks by navigating to “Portfolio returns,” clicking “Add comparison,” and selecting from various stock and bond allocations.
Betterment automatically displays your portfolio’s total return, indicating Additionally, you can review your portfolio’s annualized return, reflecting the average yearly growth rate.
Evaluating your performance wisely
While comparing your investments can sometimes lead to dissatisfaction, it is a necessary practice for sound financial management. Generally, assessing returns once or twice a year suffices. However, it is crucial to avoid common pitfalls, such as comparing your globally diversified portfolio with someone else’s all-U.S. holdings or basing your analysis on a limited sample size.
This process can be complex, which is why Betterment integrates more meaningful comparisons directly into its app. We also provide valuable resources to help you navigate the intricacies of investment evaluations. Remember, the gradual nature of compound growth allows ample time to deepen your understanding of investment fundamentals.
