Benchmark

[JacobM]

I apologize in advance if this is a newbie question as I'm still learning the power of FM. What is the best way to have a custom benchmark reallocate as time progresses? For example, on 1/1/18 the benchmark is 50% ^GSPC, 50% ^RUT. On 1/1/2019 the benchmark changes to 50% ^GSPC, 50% AGG. The idea is that as I change my target asset allocation over time, I would like to have my benchmark allocation change too which will allow for a more apples to apples comparison.

[Mark]

Hi JacobM,

To create a custom benchmark that changes allocation over time you'd need to use the "File / File Operations / Create Investment from Portfolio..." command, and also set up and maintain a reference sub-portfolio. In this new reference sub-portfolio you can create all the investments you reference (^GSPC, ^RUT, AGG, etc), and purchase them in the percentages you want. So, initially you would own 50% ^GSPC and 50% ^RUT. When you want to change the allocation, you can sell ^RUT and buy AGG. The allocations will change slightly over time, as the price of each reference investment changes. If you want, you can re-allocate slightly to account for this. Using this command requires you to re-run it whenever you want to update the blended benchmark. This method is more work to maintain, but it allows you to change your allocations over time.

If you just wanted a fixed allocation, it is easier to use the "File / File Operations / Create Blended Investment..." command. This command automatically updates the blended investment when either of the source investments update, so it is easier to maintain.

[JacobM]

Thanks, Mark!

[Djobydjoba]

Hello,

And there is another way. With this method the prices for the benchmark are automatically updated, and you can change the allocation from time to time, when you want:

- use the "File / File Operations / Create Blended Investment..." command, to create your benchmark.

- the day you want to change the allocation of your benchmark:

a) from the Data Register dialog > Prices, copy in the clipboard all the prices of the benchmark, excepted the price of the current day.

b) delete all the prices in the benchmark (you have to leave one price, so leave the price for the current day) and recreate the benchmark with the new allocation you want (again with Create Blended Investment, overwrite the existing investment)

c) delete again all the prices in the benchmark but leave the price for the current day. Then paste in the benchmark the prices that have been previously copied in the clipboard.

What we have done here: we have changed the way the benchmark will be calculated automatically for the new prices (reallocation) while keeping the prices of the older allocation(s).

Tip: you can create a note in the benchmark investment the day the allocation changes, to remember in the future what the change was.

[JacobM]

That's clever. I'll test it out. Thanks for the input, Djobydjoba!

[Djobydjoba]

With this method you'll have to be careful to not change, add or retrieve some older prices for any of the investments involved in the current calculation of the benchmark, because this would lead to the recalculation of these prices in the benchmark with the new allocation formula, overwriting the prices of the former allocation(s).