Managing Investments for the Long Term

Today's investment world is tyrannized by our own benchmarks, leading to countless costly investment management decisions, but we should not discard the concept of benchmarking even if we throw out the current fixation on tracking error. Successful investing over the long term requires a recognition that there is more than one measure of risk and that benchmarks should be relevant to investors' diverse long-term concerns. For that purpose, benchmarks should typically meet three objectives: finance the fund's obligations, deliver positive real returns while avoiding material losses, and deliver performance above peer medians. The sad fact is that the best benchmarks and strategies for the long term are usually discarded by sponsors because of a short-term fixation on benchmarks that meet only the peer-group objective.