The benchmark: what to compare your result against honestly

Assessing a result without a reference is impossible: any number only looks good or bad in comparison.

What a correct benchmark is

What you could have bought instead of your portfolio, with no effort, at comparable risk.

For a portfolio of Russian equities that is a total return index — dividends included, because your portfolio receives them too: The MOEX Russia Index: what it measures.

For a mixed portfolio it is a weighted combination of asset class indices in the same proportions.

Accounting for contributions

A portfolio being topped up cannot be judged by the change in its balance: the growth may be entirely down to new money. You need a measure that accounts for cash movements rather than only the closing balance.

The comparison horizon

One year says almost nothing: the spread of random outcomes over a year exceeds the difference between a good and a bad approach. Meaningful comparison starts at several years.

Risk in the comparison

A portfolio that beat the index with twice the volatility did not beat it — it took more risk. Read return and drawdown together — Drawdowns: why duration matters more than depth.

Why this is needed

To tell skill from luck and to notice in time that active decisions are not paying for themselves. Related: Active and passive management: what the fee buys.