Assessing Portfolio Performance

You put a lot of effort into your financial portfolio, understandably so. You work hard for your money and took the time to make sure you are getting the most out of your investments. With all this time (and money) invested into your future, it’s important to make sure you’re continuously assessing your portfolio’s performance. Assessing your portfolios performance is exceedingly important to the long-term goals of your investments. Unbeknownst to many, portfolio evaluation goes much further than tracking your investments.

The fact is, your portfolio won’t always be perfect. In the face of different markets, your portfolio can change in a good or bad way. It’s important to not be afraid to identify your portfolio’s strengths and weaknesses to better understand how you’re doing and where you can improve. You might think you are getting the best return, but how will you know if you don’t evaluate? There are an assortment of methods you use when evaluating your portfolio.

You can evaluate your portfolio by the measures of your return. It’s safe to say that most of us want to get the most out of our investments. Since a profitable return is the ultimate goal of any investor, measuring your return is an indicator of the performance of your portfolio. The return on your investment can be influenced by a series of things, like the amount of additions and withdrawals and the timing of them. There are two types of measurements of return, the time-weighted return and the dollar-weighted return. These two measurements provide different views on how your investments are doing.

Time-weighted return is the measurement of the historical performance of an investment portfolio. This method of evaluation allows for compensations for external flows, the net movements of value that result in transfers of assets into or out of the portfolio. Dollar-weighted return is the measurement of the rate of return from the assets of the portfolio. This is calculated by determining the rate of return of the present values of all assets in comparison to the initial investment.

Another way to evaluate your portfolio is through projections. At the beginning of your investment process, there are projections made for how your investment is anticipated to perform in the future. Projections are relevant to assessing your portfolio’s performance because they provide you with a basis of what your investment should look like. If things begin to look awry, a projection will provide you with a foundation to know where your portfolio should be.

Evaluating your portfolio is important because, like most of us, you’re pretty attached to your money and want to make more. You want to know how well your investments are performing and make sure you continue to do well. If things aren’t going well, it’s important to be aware of the undesirable results of your portfolio and to have the opportunities to improve them.

Stick to your instincts, if you feel like your investments could be doing better; assess them in a few different ways to get the best understanding. Don’t be afraid to take charge, you want to get the best return.