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Step 1: Create a Weighted Benchmark That Includes All Asset Classes

Step 1: Create a Weighted Benchmark That Includes All of Your Asset Classes

Suppose you have three asset classes in your portfolio—stocks, bonds, and cash. Your target allocations, benchmarks, and quarterly returns are shown below:

Asset Class          Target Allocations  Benchmark                  Quarterly Return

Stocks 60% S&P 500 2.5%
Bonds 30% Lehman aggregate 1.2%
Cash 10% Lehman cash 0.5%
Overall portfolio 100% Overall return 1.72%

A different benchmark is assigned to each component: use the target asset allocations listed in your investment plan as your target asset allocations.


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