The question
A model portfolio or an allocation fund says it is built with care. How do I tell whether that care added anything?
The idea
- Set it beside the simplest portfolio with the same share in stocks: a plain mix of low-cost index funds. That is what ETFIQ's benchmarks are (Beginner lesson 3).
- Four steps:Match the stock share. Find the portfolio's band (lesson 3) and its benchmark: Strategic 20, 40, 60, 80 or 95, named for its percent in stocks.Use the same dates, and more than one window.Put risk beside return (lesson 1).Count the fee gap (lesson 6).
- The question is not "did it make money?" It is "did it beat what a simple mix would have done?"
Worked example
The 4 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.
MDIV, First Trust's Multi-Asset Diversified Income fund, tracks an index that spreads money across several kinds of income-paying assets. (An example, not a pick.)
The benchmark's returns before Oct 2026 are hypothetical: today's rule applied to past prices.
| Window | MDIV | Strategic 60 | Result |
|---|---|---|---|
| 1 year | $11,115 | $10,733 | MDIV $382 ahead |
| 3 years | $13,876 | $15,291 | MDIV $1,415 behind |
| 5 years | $13,446 | $13,326 | MDIV $120 ahead |
| 10 years | $16,487 | $21,772 | MDIV $5,285 behind |
Seeing only the last year, you'd call MDIV the winner. As a yearly rate over ten years, MDIV returned 5.13% against 8.09%: 2.96 points a year behind.
Over ten years MDIV earned less and swung more, with a worst fall more than twice as deep.
The common mistake
"It beat the market last year, so it's good." Two errors. "The market" is the wrong yardstick for a mix with 40% in other things, and one year is one window. MDIV led its benchmark in the latest year and led in the latest five, and trailed by $5,285 over ten.
A second mistake: a benchmark with a different stock share. Against all stocks, any 60/40 mix looks weak; against cash, brilliant.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. A model holds 78% stocks, looked through. Which ETFIQ benchmark should it be judged against?Answer: C. Strategic 80. 78% sits in the over 70% to 85% band, whose benchmark is Strategic 80. Not D: the S&P 500 is all stocks, a different risk.2. A portfolio beat its benchmark over 1 and 5 years and trailed over 3 and 10. What is the fair summary?Answer: B. State each window: the result depends on the dates. Each window is a fact about its own dates; report them all. Not A: counting wins ignores how big each gap was.3. Over ten years, a portfolio returned 1 point a year less than its benchmark, with higher volatility and a deeper worst fall. What is the fair reading?Answer: D. Less return and more risk than the simple mix. It lost on both sides of the trade-off. Not A: more risk paid off only if return rose too.
Takeaways
- Judge any portfolio against a simple mix with the same stock share, never against "the market".
- Read every window to one end date, with the worst fall beside it.
- Count the fee gap in dollars; it sits inside every return you compare.