The XEQT Benchmark Test: Why Every Investment Decision Should Pass This Simple Check

My coworker Mike was the undisputed champion of the Monday morning stock update. Every week, without fail, he’d walk into the office kitchen, grab his coffee, and launch into a recap of his latest trades. “I’m up 40% on this biotech play.” “I got into this AI stock before the news dropped.” “Crypto’s been on fire – I’m crushing it.”

For about two years, I genuinely believed Mike was some kind of investing savant. His stock picks sounded incredible. He had a knack for picking the ones that ripped higher, and he never seemed to mention the losers.

Then one afternoon, I casually asked him a question that changed everything: “Hey Mike, what’s your total portfolio return been over the last two years? Like, across everything?”

Silence. Then a long sip of coffee. Then, “Well, I don’t really track it that way.”

He didn’t track it that way. The guy who could rattle off individual stock returns to the decimal point had no idea what his actual portfolio was doing. So we did the math together on a napkin. His total portfolio return? Roughly 6% annualized over two years. Over that same period, XEQT returned about 11%. Mike’s highlight-reel stock picks were masking a portfolio that was getting crushed by the simplest, most boring investment in Canada.

That conversation stuck with me. And it led me to develop something I now call the XEQT Benchmark Test – a simple framework that has saved me from more bad investment decisions than I can count.

1. The Concept of a Personal Benchmark

Here’s something professional money managers understand that most retail investors don’t: every investment needs a benchmark.

When a mutual fund manager reports a 12% return, nobody claps until they compare it to what a simple index did over the same period. If the TSX returned 15%, that 12% is actually a failure – the manager underperformed by 3%. Without a benchmark, returns are meaningless numbers floating in space.

But regular investors? We almost never benchmark. We look at individual positions in isolation. We celebrate a stock going up 25% without asking whether our overall portfolio beat the market. We feel smart when one crypto trade pays off, ignoring the three that didn’t.

A personal benchmark is the single most important tool in your investing toolkit. It’s the yardstick against which every decision gets measured. And for Canadian investors, there’s no better benchmark than XEQT.

Why XEQT specifically?

• It holds 9,000+ stocks across 49 countries – it essentially is the global market
• Its MER is just 0.20% – almost free
• It requires zero effort – buy and hold, that’s it
• It automatically rebalances – no maintenance needed
• It’s broadly diversified – no single stock, sector, or country risk

XEQT represents the return you get for doing basically nothing. Zero research. Zero trading. Zero stress. Any investment you choose instead of XEQT needs to justify the additional risk, cost, effort, and complexity by delivering better returns. Otherwise, why bother?

2. Why Most Investors Don’t Benchmark (And Why That’s Costly)

If benchmarking is so valuable, why do so few people do it? Because ignorance is bliss – and the truth often hurts.

Here are the most common reasons investors avoid benchmarking:

They don’t want to know

Deep down, most stock pickers suspect they aren’t beating the market. Confirming that suspicion means confronting an uncomfortable reality: all those hours of research, all that stress, all that trading – it was worse than doing nothing. That’s a hard pill to swallow.

They track the wrong things

People focus on individual wins. “I doubled my money on this one stock!” But they don’t calculate their money-weighted return across their entire portfolio. They cherry-pick the hits and quietly forget the misses. It’s like a gambler who only counts the jackpots.

They use the wrong comparison

Some investors compare their returns to a savings account (beating 3% isn’t impressive) or to inflation (barely keeping up isn’t a strategy). XEQT is the right benchmark because it represents the opportunity cost of your investment decisions.

They don’t know how

Honestly, a lot of people just don’t know how to calculate their total portfolio return. Between contributions, withdrawals, dividends, and different account types, it gets confusing. So they don’t bother.

The cost of not benchmarking is enormous. Here’s a simple example:

Let’s say you invest $500 per month for 25 years. If you’re a stock picker earning 6% annually (which is generous for most individual investors) while XEQT earns 9% annually, here’s what happens:

That’s $214,000 left on the table because you didn’t have a benchmark telling you to stop stock picking and just buy XEQT. That’s a house down payment. That’s years of retirement. That’s the real cost of not measuring yourself against something simple.

3. The XEQT Benchmark Test Explained

The XEQT Benchmark Test is three questions you ask before buying any investment. If you can’t answer “yes” to all three with genuine confidence, you buy XEQT instead.

Question 1: “Will this investment reliably beat XEQT’s long-term returns after all fees and taxes?”

This is the core question. XEQT has historically delivered roughly 8-10% annualized returns over long periods. Whatever you’re considering needs to clear that bar – not once, not in a lucky year, but reliably over your investment horizon.

Key word: reliably. A stock might beat XEQT in any given year. But can it do so consistently over 10, 20, or 30 years? The data says most stocks can’t.

And you need to account for all costs:

• Management fees and MERs – that 2% mutual fund fee compounds devastatingly over decades
• Trading commissions – even $5 per trade adds up if you’re active
• Bid-ask spreads – hidden costs on every transaction
• Tax drag – frequent trading triggers capital gains sooner
• Advisory fees – if you’re paying someone to pick investments for you

After all costs, does it still beat XEQT’s 0.20% MER and buy-and-hold tax efficiency? Be honest.

Question 2: “Am I being compensated for the additional risk I’m taking?”

Buying a single stock instead of 9,000+ stocks is more risky. Full stop. You might get lucky, but you might also watch your position drop 80% while the broad market chugs along just fine.

Think about it this way: XEQT gives you the market return with market risk. Any investment that differs from XEQT is making a bet – concentrating in one company, one sector, one country, or one asset class. You need to be compensated for that concentration with higher expected returns.

The financial term for this is risk-adjusted returns. A 15% return on a single volatile stock isn’t necessarily better than a 9% return on XEQT if that stock could easily drop 50% in a bad year.

Question 3: “Is the time and mental energy worth the potential outperformance?”

This is the question people forget. Even if an investment might beat XEQT by a percentage point or two, what does it cost you in time?

• Hours spent researching individual companies
• Stress from watching volatile positions swing up and down
• Mental energy spent deciding when to buy, when to sell, when to hold
• Emotional toll of losses and the temptation to make impulsive decisions

Your time has a dollar value. If you spend 5 hours per week on stock research and your portfolio is $100,000, you’d need to outperform XEQT by a significant margin to justify that time. For most people, those hours would be better spent earning more income, building skills, or just living their life.

The XEQT Benchmark Test in one sentence: If an investment can’t reliably beat ~9% annual returns after fees, taxes, and your time, it doesn’t deserve your money.

4. Applying the Test to Common Investments

Let’s run the XEQT Benchmark Test on the most common investment alternatives Canadians consider.

Individual Canadian stocks

My friend Sarah bought Shopify at $90 in early 2023 and felt like a genius when it hit $140. Then it dropped back to $75. She panicked and sold. Net result? A loss, plus the stress of watching it swing, plus capital gains taxes on the brief period it was up (she’d been selling and rebuying along the way). Over that same period, XEQT just quietly climbed.

Benchmark Test result: Most individual stocks fail. The SPIVA data shows that roughly 90% of actively managed funds underperform their benchmark over 15 years – and those are run by professionals. You, picking stocks after reading a Reddit post, are statistically very unlikely to beat XEQT consistently. Some individual stocks will beat XEQT in any given year, but picking which ones in advance is the hard part. And you only need to be wrong a few times to drag your whole portfolio below XEQT’s returns.

Cryptocurrency

Crypto is the ultimate highlight-reel investment. Everyone knows someone who “made a fortune” on Bitcoin or Ethereum. But here’s what those stories leave out:

• The people who bought Bitcoin at $69,000 in November 2021 and watched it drop to $16,000
• The altcoins that went to zero (and there are thousands of them)
• The exchange collapses, rug pulls, and hacks
• The tax nightmare of tracking hundreds of transactions

Some crypto has delivered extraordinary returns. But the volatility is extreme, the risk of total loss on any single token is real, and the average crypto investor’s returns are dragged down by buying high during hype cycles and selling low during crashes.

Benchmark Test result: Fails for most investors. Unless you have exceptional risk tolerance, a long time horizon, and the discipline not to panic-sell during 60%+ drawdowns, crypto is unlikely to beat XEQT on a risk-adjusted basis.

Canadian real estate (investment property)

“Real estate always goes up” is Canada’s national motto. But investment property is far more complex than people think:

• Costs are massive: Mortgage interest, property taxes, insurance, maintenance, vacancy, property management fees, and closing costs
• Returns are often overstated: People cite the purchase price and current value but forget the $150,000 they spent on the roof, the furnace, the reno, and the agent commissions
• Leverage cuts both ways: Yes, you can buy with 20% down, but if the property drops 20%, your equity is wiped out
• It’s illiquid: Selling takes months and costs 4-5% in commissions and fees
• Time commitment: Being a landlord is a second job

After accounting for all costs, the actual return on investment property often lands in the 4-7% range – comparable to or below XEQT, with far more effort, stress, and concentration risk.

Benchmark Test result: Usually fails. Real estate can work as a business (where your labour generates returns), but as a passive investment compared to XEQT? The math rarely works out after all costs.

Actively managed mutual funds

This is the easiest one. Canadian mutual funds charge an average MER of 2.0-2.5%. XEQT charges 0.20%. That’s a 1.8-2.3% annual headwind before the fund manager even makes a single decision.

Over 25 years, a 2% annual fee difference on a $100,000 portfolio costs you roughly $150,000 or more in lost compounding. And as we’ve already seen, most fund managers don’t beat the index before fees, let alone after.

Benchmark Test result: Fails. There’s essentially no scenario where a 2% MER Canadian mutual fund is a better long-term bet than XEQT.

Canadian dividend stocks

Dividend investing is wildly popular in Canada, and I get the appeal. There’s something psychologically satisfying about receiving cash payments from your investments. But dividend stocks have several issues as an XEQT alternative:

• Dividend stocks concentrate you in a few sectors – mostly banks, telecoms, and utilities. You lose the diversification XEQT provides across 9,000+ companies.
• Dividends aren’t free money – the stock price drops by the dividend amount on the ex-date. You’re getting your own money back.
• Total return is what matters, not income. A stock that grows 10% with no dividend beats a stock that grows 4% with a 4% dividend – same 8% total return, but the growth stock defers taxes.
• Tax inefficiency – in a non-registered account, dividends are taxed annually, while XEQT’s growth is mostly tax-deferred until you sell.

Benchmark Test result: Usually fails. Dividend-focused portfolios tend to underperform total-market portfolios like XEQT over long periods due to sector concentration and tax drag.

5. The Benchmark Comparison Table

Here’s how common Canadian investment alternatives stack up against XEQT:

The pattern is clear. Most alternatives either can’t match XEQT’s returns, charge too much in fees, require too much time, or introduce unnecessary risk. Usually, it’s all four.

6. When an Investment DOES Pass the Benchmark Test

I’m not going to pretend that XEQT is the optimal investment in literally every scenario. There are rare situations where an alternative can legitimately pass the benchmark test:

Your employer offers RRSP matching

If your employer matches your RRSP contributions, that’s an instant 50-100% return on your money. No investment in history beats free money from your employer. Max out the match first, then put the rest in XEQT. The investment inside the RRSP can still be XEQT, but the matching itself passes the benchmark test by a country mile.

You have genuine edge in a specific area

If you work in the pharmaceutical industry and have deep knowledge of drug development pipelines (staying within legal insider trading boundaries, obviously), you might have informational edge that most investors don’t. But be honest with yourself – reading about an industry on Reddit is not the same as having genuine professional expertise. And even professionals get it wrong more often than right.

Real estate as a business with your labour

If you’re buying a fixer-upper, renovating it yourself, and adding significant value through your own labour and expertise, you’re essentially running a business. The returns can exceed XEQT because you’re being compensated for your skills and sweat equity, not just your capital. But that’s a job, not a passive investment.

Tax-advantaged situations

Sometimes specific investments make sense for tax reasons. For example, holding US-listed ETFs directly in an RRSP can save you foreign withholding tax compared to the Canadian-listed equivalents inside XEQT. The tax savings might be worth the added complexity – but only if you have a large enough portfolio for the savings to matter.

You genuinely enjoy it and cap your allocation

If researching stocks is your hobby and you find it genuinely fulfilling, there’s nothing wrong with allocating a small portion – say, 5-10% of your portfolio – to individual picks. Think of it as “fun money.” But the other 90-95% should be in XEQT so your financial future doesn’t depend on your hobby paying off.

The key theme here: investments that pass the benchmark test almost always involve some kind of edge or structural advantage that most people don’t have. If your only edge is “I read a Motley Fool article,” you don’t have an edge.

7. The Psychological Benefit of Having a Benchmark

Beyond the financial benefits, the XEQT Benchmark Test does something incredibly powerful for your psychology. It gives you a default answer.

Every investing decision becomes simpler:

• Coworker pitches you a stock? “Interesting. But will it beat XEQT?” Probably not. Buy XEQT.
• Financial advisor suggests a new fund? “What’s the MER, and has it beaten a global equity index over 10 years?” Probably not. Buy XEQT.
• Reddit is screaming about a meme stock? “Will this reliably beat XEQT over my time horizon?” Definitely not. Buy XEQT.
• Your uncle says real estate is the only real investment? “After all costs, does it beat XEQT?” Usually not. Buy XEQT.

See the pattern? The benchmark test turns investing from a constant series of difficult decisions into a simple binary. Either an opportunity clears the XEQT bar, or it doesn’t. And since almost nothing reliably clears it, your default action is always clear: buy more XEQT.

This eliminates several destructive psychological traps:

• Decision fatigue – no more agonizing over which stock to buy
• FOMO – you have a rational framework to evaluate hype
• Regret – you know you’re doing the mathematically optimal thing
• Overconfidence – the benchmark keeps your ego in check
• Analysis paralysis – the default answer is always available

I used to spend hours every week researching stocks, reading analyst reports, and debating trades with friends. Now I spend about 10 minutes a month buying XEQT. The mental freedom is worth more than any potential outperformance I might have squeezed out of stock picking.

8. How to Actually Track Your Portfolio Against XEQT

Convinced you need a benchmark? Good. Here’s how to actually implement it.

Step 1: Calculate your money-weighted return

Your money-weighted return (also called the internal rate of return, or IRR) accounts for the timing and size of your contributions and withdrawals. This is the most accurate measure of your investing performance.

Most brokerages show this number somewhere in your account dashboard. On Wealthsimple, it’s right on your portfolio page. If your brokerage doesn’t show it, you can calculate it in a spreadsheet using the XIRR function.

Step 2: Find XEQT’s return over the same period

Look up XEQT’s total return (including dividends) over the exact same time period as your portfolio measurement. You can find this on the iShares website, Google Finance, or Yahoo Finance. Make sure you’re comparing apples to apples – same start date, same end date.

Step 3: Compare honestly

Here’s the moment of truth. Is your portfolio return higher or lower than XEQT’s?

If it’s higher – congratulations, you’re in the minority. Keep doing what you’re doing, but keep measuring. Many investors who beat the market for a few years eventually regress to the mean (or worse).

If it’s lower – and statistically, it probably is – you now have a clear, data-driven reason to simplify your portfolio. Sell the underperformers, buy XEQT, and reclaim your time.

Step 4: Set a review schedule

Check your performance against XEQT once per year. Not monthly (too noisy), not weekly (way too noisy). Annually is enough to see meaningful trends without getting caught up in short-term fluctuations.

Step 5: Be honest about all costs

When you compare, make sure you’re including:

• All trading fees you paid
• All advisory fees if you use an advisor
• All fund MERs – not just the ones you see, but the embedded ones in mutual funds
• Taxes triggered by your trading activity
• Your time – assign it a dollar value and subtract it from your returns

Once you account for everything, the picture usually becomes very clear.

A simple tracking method

If you want to keep it really simple, try this:

1. At the start of each year, write down your total portfolio value and XEQT’s price
2. Track every contribution and withdrawal you make throughout the year
3. At year-end, calculate your return and compare it to XEQT’s total return
4. Record the results in a spreadsheet

After 3-5 years, you’ll have undeniable data about whether your investment approach is adding or subtracting value compared to simply holding XEQT.

The Bottom Line: A Benchmark Changes Everything

Let me tell you what happened with Mike, my coworker from the beginning of this post.

After our napkin math session, he was quiet for a few days. No Monday morning stock updates. No kitchen bragging. I figured I’d offended him. Then on Wednesday, he walked up to me and said, “I sold everything over the weekend. Bought XEQT with the whole lot.”

I was stunned. “All of it?”

“All of it. You were right. I ran the numbers properly. I’ve been underperforming a basic ETF for three years while spending ten hours a week on research. I’m done.”

That was eight months ago. Mike’s portfolio is up, his stress is down, and he’s started using his reclaimed research hours to train for a half marathon. He told me the other day that the hardest part wasn’t selling his stocks – it was admitting he’d been fooling himself the whole time.

That’s what a benchmark does. It strips away the stories, the ego, the selective memory, and the comforting illusions. It replaces “I think I’m doing well” with “I know exactly how I’m doing.” And for most investors, that clarity is the single most valuable thing they’ll ever gain.

The XEQT Benchmark Test isn’t about XEQT being perfect. It’s about having a standard. A line in the sand. A minimum viable return that any investment needs to clear before it earns a spot in your portfolio. When you have that standard, you stop chasing tips, stop falling for hype, and stop confusing activity with progress.

You start making investment decisions from a position of knowledge instead of hope.

And honestly? That changes your entire relationship with money. Not just your investments – your spending, your saving, your career decisions. Because once you know what your money should be earning passively in XEQT, you start seeing every financial decision through that lens. That $5,000 vacation? It’s not just $5,000 – it’s $5,000 that would have become $21,000 in 15 years. That doesn’t mean you shouldn’t take the vacation. It means you’re making the decision with your eyes open.

The XEQT Benchmark Test is the simplest, most powerful tool in Canadian investing. Three questions. One default answer. A lifetime of better decisions.

Now go check your returns.