Google Finance Portfolio'​s relative performanc​e chart is an excellent idea...but has one major flaw

I recently posted on how google finance's portfolio function was not yet up to scratch however I believe that given Google's track record they will soon fix this and develop a free portfolio tool which will rival almost any other out there on the market.  As such I am keeping pretty close tabs on the development of it as well as exploring the different functions that it offers.

The ability to track your portfolio against a stock, index or other benchmark is one of the best features I've ever seen...

While a relatively simple concept I have not seen this available on many other free portfolio tracking programmes.  What it allows you to do is see how your stock portfolio is performing against any other benchmark (such as another stock or index) at any given point in time.  While it doesn't break down the reasons for out performance it does allow you a snapshot of your relative performance.

An interesting use of this is evaluating whether direct stock picking is your strength.  If you consistently (i.e. over a 2 - 3 year period) are under performing the broader market then perhaps index funds are a better option.  If on the other hand you are consistently outperforming you will see this as well. 

It is integrated really well into the whole Google Finance Portfolio tool as well.  You are entering the relevant data they require when you enter your trade details.  It also includes transaction costs in the relative performance (as it is based on a total portfolio value) which allows you to see the effect that trading costs have on your performance (albeit there is no way to strip out trading costs and view it on a 'raw' basis)

....But there is one major flaw which needs to be rectified

Because your portfolio is tracked on a total value invested basis (including transaction costs etc) this means that whenever you invest more money into the portfolio you get an immediate performance uplift which is misleading.  If you have a set investment pool then this is not a problem however if you are constantly investing more money into the market (e.g. through your wage or other income sources) then the performance of your portfolio is misleading (i.e. it looks much higher than it should)

This is a relatively easy problem to fix.  All google needs to do is fix the graph so that any additions to the portfolio do not affect the indexed value of the portfolio - however they have not done this yet. Once they get this right this will be quite a useful tool for benchmarking performance.  Until they get this right however it is absolutely useless as an analytical tool.

I still maintain that Google Finance will someday be one of the best tools on the market...

But there are simply too many bugs in the system to make it reliable just yet and the problem for Google is that the more bugs (however small) that people find the less they will trust the system.  When I am doing anything with my portfolio the one thing I am most concerned about is accuracy.  I will sacrifice all the functionality in the world for accuracy. Until they manage to restore confidence in their system and get rid of some seriously basic flaws (like the one above) I would not use it as your exclusive portfolio management tool.