How well are my stock market investments doing? Great question, one all investors need to ask. But “how well?” can only be answered in terms of “compared to what?”

No matter how your stock market investments are chosen (by yourself or others; aggressively or conservatively), you need to have some yardstick to see if your goals are being met. And if you’re getting your money’s worth for any fees you’re paying.

The Acid Test is the decider. It’s easy. Look at your stock market portfolio and see whether you’ve made as much money – on a percentage basis — as the S&P 500 index fund would have. The Acid Test is most useful when the comparison is done over a period of at least three to five years. Longer is even better.

Have your returns been greater than the S&P? If, yes, then wonderful! If not, then you’ve lost an easy profit opportunity by not making as much as you could have. By far, most people, including most investment professionals, fail the Acid Test. If you’ve paid someone or a mutual fund or a bank to invest for you and they fail the Acid Test, then you are PAYING for UNDERPERFORMANCE. This is the predicament that most investors find themselves in, often without realizing it.

Note: the calculation for the Acid Test just needs to be ballpark. No need to be precise to the last penny, especially if you’ve made additions to or withdrawals from your account. Just kind of average them in. You’ll get your answer.