Benchmarking a portfolio and calculating returns are both contentious issues in reporting the performance of a share portfolio.
The most common method of benchmarking is to compare fund or portfolio returns to an appropriate share index. Fortunately in Australia there are only a few indexes to choose between. The primary Australian ASX Indices http://au.finance.yahoo.com/indices range from the total market All Ordinaries, AORD, down through the S&P ASX 20, 50, 100, 200, 300 to the S&P ASX MidCap 50 and S&P ASX Small Ordinaries.

For a true benchmark of your performance an Accumulation Index is the correct measure. Albeit flattering, using one of the core indexes would be simply deceiving.

If you invest in Australian shares, the most common benchmark in the ASX200 Accumulation or as it is now known the S&P ASX200 Total Return Index. Standard and Poor’s took over management of the ASX indices in 2001. S&P produced and the ASX published the ASX200 Accumulation Index, XJOAI, until publication was discontinued in December 2005.

If you primarily invest in small caps then the S&P ASX Small Ordinaries Total Return Index is the appropriate index to compare your performance with.

Unfortunately since S&P stopped publication of the Accumulation Index there is no easily obtainable free source of historical data. It is possible to obtain daily data from the S&P web site as they explain in their Index FAQ.
“Where can I find Total Return/Accumulation Index on the Web site?
Go to the specific index that you are seeking and click the ‘Data’ tab. To the right-hand side of ‘TR’ and underneath ‘Level’ you will find the total return value for the date shown. To get historical data you just need to change the date, ensuring the correct date format is used. “

I have started extracting the data from the S&P website and will make it available for free. I’ll continue to update this Excel file, which also contains the S&P ASX 200 index. (AXJO)

What should an individual investor actually do?
Benchmarking against an index may be OK for fund managers, but for individual investors it makes little sense. We can’t invest directly in an index, so what there is no point in comparing ourselves to one. Individual investors should compare their portfolio performance to an investable asset which closely mirrors an appropriate index. Yup that right, I’m talking about an index fund or an ETF (Exchange Traded Fund).

Index Funds and ETFs
Two main choices in Australia, though others do exist:
Vanguard Index Australian Shares Fund” charges a management fee of 0.75% p.a. for the first $50,000, then 0.50% p.a. for the next $50,000 and 0.35% p.a. for the balance over $100,000. There is also a spread of .2% on purchase and .1% on withdrawal.

State Street SpidersETFs on the top 50 or
top 200.Management costs are 0.286% and there will be the bid/ask spread.

Index funds and ETFs are the most suitable choice for investors who do not have the time or interest for investing, but desire exposure to a particular asset. I believe Index funds and ETFs are the most suitable investment vehicle for most investors.

After I had written, but prior to posting I noticed the following new blog post on Rational Wealth Beat the Pros by Being a “Know-Nothing Investor”. I encourage you to read the blog article and I agree with every point except “Invest windfalls right away”. I’ll discuss that another day as I also received an email question as to why I had banked the uninvested portion of the Fusion Investing Portfolio instead of investing it in an index fund.

On a final note: I had meant to blog this last Friday, but was unfortunately knocked off my bicycle by a car and spent 22 hours in the Royal Melbourne Hospital with concussion and suspected spinal injury. Fortunately I will be OK with a visit or three to an osteopath, but I am unlikely to be writing consistently this week. The accident certainly made me all the more aware about how precious life is and how important it is not to waste time or opportunities.

Best to all
Dean