But the question investors need to ask themselves is how their personal portfolio actually performed? Information offers insight and good investors require the discipline to measure and benchmark their actual returns. If January is when you do your annual review of your portfolio take the time to look behind the headline return numbers and measure your portfolio against the market.

It is one of the areas where individual investors can take a leaf out of the books of professionals like super funds and their researchers and asset consultants. They look at the actual returns of a portfolio over a range of time periods and benchmark or compare it to the relevant market index.

This is where the major market indexes are powerful points of reference for investors and the returns can be sourced from a range of public sources like daily newspapers or a range of websites including the ASX or index providers like Standard & Poor's and MSCI.

So if you have an Australian share fund or a portfolio of direct share holdings you can compare it the S&P/ASX300 index which to the end of November was showing a calendar year return of 20.1%. For listed property securities the index return was 25.1% to the end of November. International shares is a more complex area but there are indexes that track major world stockmarkets but remove our local market returns and calculate returns in Australian dollars. A good example is the MSCI World ex-Australia total return index and to the end of November the performance was 9.14% if the currency movement had not been hedged and 14.35% if the currency had been hedged.

Calculating and providing indexes is a serious and competitive business and there are indexes to measure virtually every listed market. Perhaps you have money in an emerging market fund - the MSCI emerging markets index return so far this year is up 17.6% while for people who diversified some of their property allocation offshore this year the international property securities index is up 29.3% to the end of November.

So using the appropriate index gives you your comparison point to see how your portfolio went against the market's return.

This can sometimes be a sobering exercise. Research done in the US by Morningstar highlights the differences between the total return numbers that are published and the actual returns investors received. Over 10 years the performance differential on large cap share funds was 3.4% a year.

Take the example of a fund that has delivered 20% returns for the past two years. Is that the return you received? Maybe, maybe not. It will depend on whether you were invested for the whole time period. In the real world a lot of people do not do that - for example some people will have bought in when the price is high or perhaps sold out when the price was low. Investor behaviour is the true driver of the return they receive.

The message out of this is that in order to harvest the total returns investors need to steer a steady course rather chopping and changing and chasing short-term performance blips.

For people who pay a financial adviser the indexes provide an independent check. Good advisers will provide portfolio performance reports with benchmark indexes for comparison purposes. A great starting point for a portfolio review discussion is to look at why certain investments are under or over the market return.

Smart Investing
By Robin Bowerman
22 December 2006
Principal & Head of Retail, Vanguard Investments Australia
www.vanguard.com.au