The question
I've built a mix that beat its benchmark. How do I show it's sound, not just lucky timing?
The idea
- A portfolio you can defend has three parts:Build it from stated rules: the weights, and how each fund was chosen.Benchmark it against the simple mix with the same stock share, on every window (Intermediate lesson 7).Defend it: name what drove each gap, then argue against yourself like the committee's Skeptic.
- Quoting only the best window is a sales pitch, not a defence.
Worked example
The 5 steps beside the drawing at the top work this through on ETFIQ data. Point at a step to light the part of the drawing it describes.
Returns run to Oct 30, 2026; fees and committee readings are as of Nov 10, 2026. All returns are hypothetical. (An example, not a pick.)
| Window | Mix, a year | Strategic 60, a year | Gap |
|---|---|---|---|
| 1 year | 7.88% | 7.33% | +0.55 |
| 3 years | 17.87% | 15.21% | +2.66 |
| 5 years | 8.16% | 5.91% | +2.25 |
Risk over 5 years: volatility 11.24% against 10.91%; worst month-end fall −20.57% against −21.13%. (The benchmark page's −22.31% uses daily prices. Compare like with like.)
- IAUM (gold) returned +117.2%; BND (bonds) −0.9%.
- Swap gold for bonds (45/15/40) and the mix returns 6.35% a year.
- So gold gave 8.16% − 6.35% = 1.81 points of the 2.25-point lead.
- The rest, about 0.44 points, mostly came from more US stocks than VT holds: VTI returned +68.2% against VT's +60.2%.
A fair defence, in four sentences: "My mix holds 59.75% stocks, so I judge it against Strategic 60. It led on every window, by 2.25 points a year over five years, at similar volatility and worst fall. Gold supplied most of that lead, chosen with hindsight. The record is 64 months and hypothetical."
The common mistake
"It beat the benchmark, so the strategy works." The lead came mostly from one asset's run over five years. A defence names that.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. A mix with 78% stocks, looked through, beat Strategic 60 by 3 points a year. What is wrong with the claim?Answer: C. It should be judged against Strategic 80, its own band. 78% sits in the 70% to 85% band, benchmarked to Strategic 80. Not A: extra stocks are extra risk, not skill.2. Swapping a mix's 10% gold for bonds cuts its 5-year return from 8% to 6.5% a year, and the benchmark made 6%. How much of the 2-point lead came from gold?Answer: B. 1.5 points. 8 − 6.5 = 1.5. Not C: the mix without gold still led by 0.5 points.3. Which line belongs in an honest defence?Answer: D. "It led by 2.25 points a year over five years, mostly from gold, chosen with hindsight.". it gives the window, cause and caveat. Not A: it quotes the best window alone.
Takeaways
- Build from stated rules, benchmark by stock share, show every window.
- Find which choice drove the gap, and admit the hindsight.
- Write your defence as the Skeptic would attack it.