Investment Performance and Your Portfolio

Believe it or not, many investors don’t know the percentage investment performance number for their portfolios.  Even if they do, they may not know if that performance is terrific…or terrible!  

Here’s a quick primer on how to properly evaluate your investment performance. 

Total return.  This percentage measure is the foundation of investment performance.  In simplest form, total return is the sum of cash income received plus asset appreciation (or depreciation).  For example, in a stock portfolio that experiences a two percent cash yield and seven percent asset appreciation, the total return is nine percent.  If that same portfolio experiences a two percent cash yield and four percent asset depreciation, the total return is a negative two percent. 

Required return.  This is the number that you and your financial advisor deemed necessary to achieve your financial goals.  It is the most important benchmark, because if you are underperforming your required return, you may need to adjust your goals…or…re-assess your current lifestyle.  Important:  Over the past several years, many investment styles have underperformed their longer-term historical averages, and many advisors used those numbers in their projections.  Talk to your advisor to determine if those projections are still accurate…and…appropriate for you!!! 

Asset class and asset style returns.  Compare each asset class and sub-class (i.e. stocks, bonds, cash, etc.) and style (i.e. growth, value, blend, etc.) within your portfolio to its respective and most relevant index.  Doing so allows you to better assess what changes, if any, might improve overall performance.  If you discover underperformance for a number of time periods, ask your financial advisor for an explanation. 

Weighted benchmark return.  Most portfolios consist of multiple asset classes;  therefore, it’s not appropriate to compare overall portfolio performance to that of a single index.  A better approach is to construct a customized benchmark based on the percentages of your portfolio allocated to various asset classes and styles.  

Peer group return.  How do the performances of your various asset classes compare to their respective peer groups?  Are they in the top twenty percent…top fifty percent…or…bottom half?  Be sure to use multiple time periods in your comparison.  At minimum, performance should easily fall into the top half of peer group performance. 

Risk basis.  Let’s not forget risk.  Two portfolios might experience identical returns over time, but one may experience more dramatic ups and downs.  That one would be considered riskier and less favorable.  

Assessing investment performance can be challenging, particularly during periods of economic, political, and market uncertainty.  Still, by using the guidelines outlined above, you can develop a clear sense of how your investments are performing and what, if any, changes are necessary.


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