I have been reading your column for years, and learned a great deal, thanks. My husband and I are both working at universities, and have invested money in the TIAA-CREF stock fund. I am still not clear how to place this fund in a portfolio, how to evaluate its performance and which benchmark I should use. It is not easy to follow this fund since there's not much information available about it other than what's on TIAA-CREF web site.

Paul's Answer:

You could start by asking TIAA-CREF the questions you have asked me. According to the TIAA-CREF Web site, the stock fund in their retirement programs is designed to closely track the overall U.S. stock market. You can find this fund's return updated regularly on the TIAA-CREF Web site. 

This fund is based on the Russell 3000 Index, which consists of the 3,000 largest publicly traded U.S. companies. Two-thirds of the fund is invested in the index itself and the other third is actively managed to try to pick the most promising stocks from among the 3,000. So far, the straight index part of the fund has outperformed the actively managed part.

I think a decent benchmark for this fund is the S&P 500 Index. The way to use this fund in a portfolio is the same way you would use an S&P 500 Index fund. It should be part of your portfolio, and it could even be a major part of it. But it certainly should not be the whole thing.

TIAA-CREF has a global equities account that invests in markets everywhere, including the U.S. It probably should make up a significant part of your portfolio unless you have international funds elsewhere. The company also offers a growth account and a "social choice" option that invests only in stocks, bonds and money-market investments that meet certain social tests.

TIAA-CREF's retirement options don't include a value fund or a small-cap fund, and you ought to use your investments outside your university retirement account to fill in those gaps in the portfolio. You can aim for the percentage recommendations outlined in our article "The Best Buy-and-Hold Strategy We Know."

The best benchmark for evaluating your overall portfolio is the rate of return that you need to meet your own financial goals. That's something every investor should know, but most people never sit down and figure it out. You might want to work with a financial advisor on that; if you do, be sure to hire somebody who does not sell any products.