How do you know if your portfolio is efficient and what impact it could have on results? Why Efficiency Matters When you ask most investors what impacts portfolio results the most, most will say cost. While cost is important—and yes, high costs can hurt results—what many investors fail to realize is that portfolio inefficiency and investor behavior can actually hurt results more than cost (unless we’re talking about abnormally high costs). Before diving into what an efficient portfolio looks like—or doesn’t look like—let’s see how a 3% difference in portfolio results can impact a lifetime. As you can see, while a 3% difference may not seem huge in one year, over 20 years the lost compounding impact is significant. Now imagine you unfortunately had an inefficient portfolio for 20 years, and you’re now retired. You begin drawing 4% annually from your portfolio. Let’s look at the retirement impact due to lost compounding during those first 20 years, now extended for another 20. The S&P 500 Index is an unmanaged securities index that is used as a general measure of market performance, and its performance is