There’s a simple way to make a perfectly good investment portfolio feel like a failure: Compare it to something that did better.
Maybe the S&P 500 gained 20% while your portfolio was up 13%. Or international stocks suddenly took off while most of your money was invested in the U.S. Perhaps a friend tells you how much money he made owning a handful of technology stocks. Suddenly, earning 13% doesn’t feel so great.
This is benchmarking, and Wes Moss, a fiduciary financial advisor and host of Ask an Advisor on the Clark Howard Podcast, says it can be an especially dangerous mistake for retirement investors.
“Benchmarking is a dangerous retirement mistake because it feeds the phenomenon of always seeing something greener on the other side of the investment fence,” Wes says.
The problem isn’t looking at a benchmark. Benchmarks can be useful tools. The problem starts when you use someone else’s performance, or the performance of an index that doesn’t resemble your portfolio, to decide whether you’re succeeding.
Your Portfolio Isn’t the S&P 500
The S&P 500 is probably the benchmark investors hear about most often. And if you own a diversified portfolio, there will inevitably be years when you underperform it. That doesn’t necessarily mean you’ve done anything wrong.
Imagine you’re approaching or already in retirement and have 60% of your portfolio invested in stocks and 40% in bonds. If the stock market has a huge year, you’re going to trail the S&P 500. Of course you will. The S&P 500 is essentially 100% stocks. Your portfolio isn’t.
Those bonds that held back your returns during the boom are there specifically to reduce volatility and provide stability when stocks fall. Comparing the two portfolios based only on their returns ignores why they’re constructed differently in the first place.
It’s like criticizing a minivan because it can’t keep up with a sports car. Speed wasn’t the reason you bought it.
There’s Always Something Doing Better
Even if you’re 100% invested in stocks, benchmarking can get you into trouble. At almost any moment, you can find an investment that has recently performed better than yours. Maybe it’s large U.S. companies. Then it’s small caps. Then international stocks. Then technology. Then value stocks. Then some individual company everyone seems to be talking about.
Look at 2026 so far. Through mid-August, the S&P 500 is up about 12%. That’s a good year by any normal standard. But small-cap stocks are up nearly 22% and emerging markets stocks are up more than 20%. So an investor who spent the last several years moving money toward the S&P 500 because it kept beating everything else is now watching two other asset classes beat it.
Our asset class returns quilt shows how routinely this happens. It ranks eight major asset classes from best to worst each year, going back decades. Whatever finishes on top one year is rarely on top the next.
Something will always do better than your portfolio. That’s not a flaw in diversification. It’s practically the definition of diversification.
If you spread your money among different types of investments, you know in advance that you won’t have all your money in the year’s best-performing investment. You also won’t have all of it in the year’s worst. The trouble comes when investors look at what’s winning and decide they need more of it.
Benchmarking Can Turn Into Performance Chasing
This is where an innocent comparison can become an expensive investing habit. You notice that the S&P 500 has beaten your portfolio for several years, so you move more money into the S&P 500. Then international stocks begin outperforming, and you wonder whether you should own more of those. Technology stocks soar, and your diversified index funds start to seem boring. This is the investment hopping Wes warns about.
“Instead of asking whether your portfolio is funding your personal retirement goals, benchmarking pulls you into a toxic loop of comparing your returns to arbitrary market indexes or hotter sectors you think you’re missing,” Wes says.
That comparison can create “a pattern of investment hopping that rarely turns out well.” The reason is simple. You’re usually reacting to what has already happened.
The investment you’re tempted to buy is attractive precisely because it has performed so well recently. Meanwhile, the investment you’re tempted to abandon may look unattractive because it has recently underperformed. You’re effectively looking in the rearview mirror and using it to decide where to go next.
What’s the Right Benchmark?
For most investors, the most important benchmark has nothing to do with the market. It’s whether your portfolio is doing what you need it to do.
Suppose your retirement plan assumes you need an average long-term return of 6% to support your spending without running out of money. Your diversified portfolio is producing returns consistent with that plan while taking a level of risk you’re comfortable with. Does it really matter that the S&P 500 did better last year? It might be interesting, but it doesn’t necessarily mean you should change anything.
A portfolio earning 6% when your plan needs 6% is doing its job. And a portfolio earning 12% while carrying far more risk than your plan calls for has taken on an exposure you never needed, which is something you’ll only find out about in a bad year. Your plan tells you whether you’re on track. An index tells you what a group of stocks did.
Don’t Let Someone Else’s Returns Ruin Your Plan
Investing would be considerably easier if we never knew how anyone else was doing. But that’s not the world we live in.
We see the stock market’s performance every day. We hear about the stocks that soared, not the ones that quietly lost half their value. Friends tell us about their winners. Financial headlines constantly remind us which investments are “crushing the market.” All of that makes it remarkably easy to feel like you’re falling behind.
But investing isn’t a competition to earn the highest possible return every year. Higher potential returns generally come with higher risk, and the portfolio that’s appropriate for someone else may be completely inappropriate for you.
Final Thoughts
Before changing your portfolio because something else is outperforming it, ask yourself two questions:
Is my portfolio appropriately diversified for my goals and risk tolerance?
And is it on track to provide the money I’ll need?
If the answer to both is yes, you may not have an investing problem at all — you may simply be looking at the wrong benchmark.
The goal isn’t to own whatever is winning right now. It’s to build a diversified portfolio with an appropriate level of risk that gives you a good chance of reaching your financial goals, and then have the discipline to stick with it when something else inevitably looks greener on the other side of the fence.
The post Are You Making This Common Investing Mistake? (Benchmarking) appeared first on Clark Howard.