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The best investment products for beginners are cheap to buy and own, easy to manage and effective in producing competitive returns

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Did your portfolio trounce the TSX this year? Dominate the Dow? Surge past the S&P 500?

If it did: congratulations. If it didn't: congratulations, too.

The stock market, despite what many people think, is not the best benchmark for your portfolio. The market isn't trying to pay down a mortgage. It doesn't have kids to put through university. Nor is it planning to retire.

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In fact, there's no reason to think that the performance of an artificially constructed index should shed any light on whether your own portfolio is doing its job. Yet many of us assume that we're foundering if we're not matching the stock market–or thrashing it, like our obnoxious friends claim they are.

The confusion is understandable. For years, we've been told to invest in index funds to ensure we get the market return. But that doesn't tell you how the components of your portfolio—stocks, bonds, etc.—should fit together to produce an overall return. And it gives you no clue about whether you're on track to reach personal goals.

The real challenge is to develop a personal benchmark that reflects your needs, income, risk tolerance and savings capacity. It should be a rate of progress that will get you where you want to go.

If you're in your 20s, with a good job, that may mean building a stock-heavy portfolio and accepting larger-than-average risk in pursuit of big returns. But if you're in your 40s and saving for your teenagers' tuition, or if you're in your 60s and near retirement, it probably involves loading up on safe investments and watching the stock market from afar.

Chances are that a realistic goal is more modest than you think. Here are three benchmarks that make sense:

Shoot for zero
A realistic first goal is to avoid seeing the real value of your portfolio decay under the combined forces of the market, inflation and taxes.

Easy, you say? Tell that to people with savings accounts. Most are making little more than 1 per cent a year, even on "high interest" accounts, and losing about half of that return to tax. With inflation running at about 2 per cent, they're seeing their purchasing power erode steadily.

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Things don't get much better when people play with stocks and bonds on their own. J.P. Morgan estimates that the average investor only earns about 2.5 per cent a year. If you're staying ahead of inflation–especially after taxes–you're probably doing better than you think.

Four is fine
A simple, balanced portfolio composed of 60 per cent stocks (divided evenly between Canadian, U.S., European and Asian equities) and 40 per cent bonds would have produced slightly less than a 4 per cent average annual return over the past 15 years, after inflation and fees. For most of us, that's an achievable goal.

The Ivy League benchmark
Harvard, Yale and other big universities hire some of the world's most brilliant investors to manage multibillion-dollar endowment funds.

In the 1990s and early 2000s, some of these endowments achieved eye-popping returns. More recently, they've been sucking wind. Harvard, for instance, averaged a paltry 1.7 per cent a year over the five years to the end of 2013. Even if you think you failed over that time, chances are you schooled Harvard. Mention that the next time an obnoxious friend starts bragging about beating the market.

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Sound investing advice from Bill Miller, Legg Mason's fund manager, who beat the S&P 500 index 15 years in a row, then lagged behind it the next five years out of six
"The S&P 500 is a wonderful thing to put your money in. If somebody said, 'I've got a fund here with a really low cost that's tax-efficient, with a 15-to-20-year record of beating almost everybody,' why wouldn't you own it?"

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