Benchmark Selection for Investment Portfolio

Which benchmark should Judith use to measure Ollie's current investment portfolio?

A. S&P 500

B. MSCI EAFE

C. Wilshire 5000

D. Russell 2000

Final Answer:

The Wilshire 5000 should be used as the benchmark to measure the relative performance of Ollie's investment portfolio due to its comprehensive coverage of publicly-traded U.S. stocks, reflecting the diversified nature of the portfolio.

Judith Nester, CFP®, should use the Wilshire 5000 as the benchmark to measure the relative performance of Ollie's investment portfolio. The reason for this is that the Wilshire 5000 includes practically all publicly-traded U.S. stocks, making it a comprehensive benchmark for diversified portfolios like Ollie's, which contains a mix of different asset classes including large cap stocks, mid cap stocks, small cap stocks, international funds, bond index funds, and more.

Diversification is a key concept here, as it can offset some of the risks of individual stocks rising or falling sharply, as demonstrated in the 2008 stock market crash when average U.S. stock funds declined by 38%, heavily impacting those relying on these funds. By using a broad measure like the Wilshire 5000, Judith can provide a more accurate reflection of the overall performance of Ollie's diverse investment portfolio.