Picking the Right Benchmark: Why Comparing Your Portfolio to the Wrong Index Fools You
6 min read
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6 min read
Your portfolio is up 8% this year. Is that good?
It depends on who you ask. Compared with one index, you beat the market. Compared with another, you lost to it. Same money, same year, opposite verdicts.
Knowing how to choose a benchmark for your portfolio is what turns that number into an honest answer. A benchmark is simply a reference index you compare yourself against. This post shows how to pick a fair one, with a worked example in rupiah.
Here is a made-up portfolio of Rp100 juta. Everything below is NetWort arithmetic with invented returns, not real market data.
You hold Rp60 juta in Indonesian stocks and Rp40 juta in US stocks. After a year:
Your total return is (0.6 × 4%) + (0.4 × 14%) = 2.4% + 5.6% = 8.0%.
Now compare it with two invented index returns for the same year:
| Benchmark | Index return | Your 8.0% minus the index | Verdict |
|---|---|---|---|
| IHSG only (the Jakarta Composite Index) | +3% | +5.0 points | "I beat the market" |
| S&P 500 only (500 large US companies) | +15% | -7.0 points | "I lost to the market" |
Neither verdict is fair. You never held 100% Indonesian stocks, and you never held 100% US stocks. Each index grades only half of what you own.
The fair benchmark looks like your portfolio. If you hold two markets, blend two indexes, using your own weights.
For our example: (0.6 × 3%) + (0.4 × 15%) = 1.8% + 6.0% = 7.8%.
Your 8.0% minus 7.8% is +0.2 points. That is the honest answer. You roughly matched a mix of the markets you invest in. Not a triumph. Not a failure.
Use the weights you started the period with. If one holding has grown a lot, your weights will have drifted. We explain that drift in our guide to portfolio beta.
An index quoted in dollars and a portfolio counted in rupiah are not measured with the same ruler. When the rupiah weakens, a US holding gains in rupiah terms even if the stock itself did nothing.
So compare like with like. Either convert the US index return into rupiah, or measure the whole portfolio in dollars. In our example, the 15% S&P 500 figure was already counted in rupiah.
Most index figures you see quoted are price indexes. They count only price changes and leave out dividends. A total return index adds the dividends back in.
If your portfolio pays dividends that you reinvest, compare it with a total return index. Otherwise your result looks a little better than it really is. We cover the gap in price return vs total return.
Use exactly the same start and end dates for you and for the index. A 12-month portfolio return against a calendar-year index return is not a fair fight.
Also check which kind of return you are looking at. If you added or withdrew money during the year, your own return may be money-weighted, meaning it counts when your cash went in. Index returns are usually time-weighted, meaning they ignore the timing of cash. The two are not meant to match. See time-weighted vs money-weighted return.
IHSG covers almost every listed stock on the Indonesia Stock Exchange. LQ45 is a smaller list of 45 stocks picked for liquidity (how easily they trade) and size.
A simple test: which list looks more like your holdings?
Whichever you pick, write it down before the year starts. Then stick with it. We compare the two lists in LQ45 vs non-LQ45 stocks.
Picking the index that flatters you. It is tempting to choose the index you beat. If you choose after you see the results, the comparison tells you nothing.
Using one index for a mixed portfolio. Our example showed it: a single index swings your verdict from +5 to -7 points.
Forgetting parts that no index fits. Cash, gold and crypto rarely match a stock index. You can grade each slice against its own yardstick, such as a gold price or Bitcoin, and keep it separate from the stock part.
NetWort chooses a benchmark automatically for the beta number on your Portfolio Health card. It counts your tickers by market. If most end in .JK, it uses the Jakarta Composite Index. If most are US stocks, it uses the S&P 500. The code also has Hang Seng for Hong Kong and FTSE 100 for the UK.
It picks one index, the market with the most tickers. It does not blend. So for a portfolio like our 60/40 example, the card compares you with Indonesia only. Keep that in mind when you read it. Our guide to beta against the right index explains why.
To see how sentiment looks in each market, the NetWort Market page shows Indonesian and US readings side by side.
Open your NetWort Dashboard and look at your Portfolio Health card. Write down your split between Indonesian stocks, US stocks and everything else. Then build your blended benchmark from those weights and compare it with your return.