Originally Shared on LinkedIn
Here’s how 1.0% turns into a $29,000 blind spot
This is part of a series deconstructing a Portfolio Efficiency Audit we recently completed for a new client. For a $2.9M portfolio, these combined deficiencies can represent an annual opportunity cost in the low-to-mid five figures. We consistently see these issues across clients who have managed their own portfolios and those who have switched to us from other advisors.
The Problem:
Everyone has seen the headlines that active portfolio managers can’t beat a passive index. But most clients we work with have never seen their portfolio’s performance lined up against these passive benchmarks before coming to us. Especially those working with other advisors (three guesses why an advisor might like to obscure this data).
The Math:
Here’s some illustrative numbers to show how a $2.9M portfolio underperforming benchmarks isn’t just a rounding error:
- at 0.5% it’s $14,500 a year in lost opportunity
- at 1.0% it’s $29,000 a year
- at 1.5% it’s $43,500 a year
At 1.0% a year you’re looking at $290,000 over the next ten years – before taking into account any growth.
The Strategy:
The first step of our audit is a cold, hard look at reality. We benchmark our clients’ legacy portfolios against objective global benchmarks to identify where there may be major performance gaps.
S&P recently found 88.3% of active managers underperformed the S&P 500 over the last 15 years. In large-cap stocks, the “market return” is often the smartest move.
Conversely, that same study found 40.7% of US Muni Managers beat their index in that timeframe. This is where careful selection of active managers may pay off.
We look at the portfolio as a whole and individual asset classes.
An effective portfolio manager knows where to accept the indexed market return and where active management actually adds value.
Disclosures: Kangpan & Co. is a registered investment advisor. All content is for educational purposes only and is not financial advice. Past performance is not indicative of future results. Based on actual $2.9m portfolio audit completed for a recent client; all math in this post is illustrative to protect client privacy. Research referenced via S&P’s SPIVA (June 30, 2025).