The counter that measures your investment return is set back to zero. Last years return doesn’t count anymore, positive or negative, the focus is set to the coming year. In previous days or weeks you may have analyzed last years return. How was the breakdown of the performance? Where does your portfolio needs improvement, where can you leave it as before? For this year you will have a new watch list. They are like the people not yet in the team, but waiting for others to make a mistake. Or, you as the coach of the team could experiment with a new setting. Perhaps the current allocation needs to be reorganized.

An important question is how do you benchmark this? We all know the absolute return of our portfolio, any bank or commissioner can calculate this real time. Then the comparison game starts. We are not alone in this world and the return of 5% can be very good, but what if any index has done twice as good in the same period. Where does this put you?

If your portfolio is hundred percent (100%) allocated to the stock market, your benchmark could be the Dow Jones Industrial Average (DJIA) for example. But what if your stock selection is focused on technology stock, would you then use the NASDAQ? Or what if you have 10% liquid, some other investments in real estate, some stock-option, etc...? Then you would need a combination of benchmarks.

Financial advisors can provide you with a model portfolio (like management advisors can provide you a model organization). This is a virtual portfolio with a predetermined asset allocation. This allocation and the subsequent model should agree with your personal profile. If you are willing to take more risk the model would advice to invest more in stock and or options. A defensive model portfolio would advise to allocate a limited percentage to stocks.

Now is it possible to start with a new slate? You could start to sell your portfolio, but then what? Would you choose a new model portfolio to compare the allocation and results? Probably not. First of all transactions have their costs and will negatively effect overall return. It is more probable that you will make similar mistakes than the ones in the previous year. So more important would it be to evaluate these and in that way prevent making them again.

© 2006 Hans Bool

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account.

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