Why Do I Find it So Important to Compare My Returns to an ETF?




Each month on this blog, I publish my Best 2014 stock picks for both the US and Canadian markets. I always compare my picks to a dividend ETF. When I look at my own portfolio, I do the same thing. Finally, each month I publish my Dividend Stocks Portfolios at Dividend Stocks Rock and compare them to dividend ETFs as well. Some investors don’t do this because they feel good as long as they receive their dividends on a monthly basis and that their portfolio value doesn’t show a negative return. I use a comparison system because it enables me to see how good (or bad) I am.


What is the point of comparing your returns?


The point is quite simple: there are thousands of ways to invest your money and dozens of investment vehicles to package your portfolio. Let’s take my $50,000 invested in my RRSP for example. With this amount, I could invest in many ways:

#1 I could go and see a broker that will manage the money for me

#2 I could buy a good growth mutual fund and never look back

#3 I could build an index portfolio with ETFs and rebalance it once a year

#4 I could invest in a super safe GIC at 2.50% for 5 years

#5 I could buy bonds with pretty much the same result

#6 I could spend enough time on my investments to manage the portfolio myself


The first 5 options won’t take much of my time. In fact, besides the ETF portfolio, chances are that you can spend less than 5 hours per year and have your money managed by someone else… and maybe you can spend about the same time if you build a coach potato ETF portfolio!


Therefore, why in the hell would I want to spend hours managing my own stuff? There are two major reasons for this:

#1 I love investing

#2 I think I can do better than the market


And this is the whole point of comparing: if I can’t beat the market, what’s the point of wasting time on my portfolio? I should just buy ETFs or simply buy a mutual fund and use my free time on something else!


What do you use as comparison?


I also take great pride to see that my portfolio did better than the market but I usually compare my return against a dividend ETF. The point is simple: I like dividend investing as it generates a better stability in my portfolio than other aggressive ways of investing. Comparing a 100% dividend stock portfolio to the market is a bit unfair as it will be killed during a bull market and usually perform better in a bear market.


This is why I use a dividend ETF; because I could use the dividend ETF instead of spending time managing my portfolio. If I can beat the ETF, this means I’m better off spending time on for my stocks. I’m really passionate about investing but if I didn’t have the ability to make good decisions, I really wonder what would be the point of spending time analyzing stocks while I could simply buy a ETF and never look back, right?


Do you compare your returns to an ETF or an Index?


What about you? Do you use any kind of metrics to compare yourself? How do you know if you are doing well or not?

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