Monitoring the Performance of Your Portfolio

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Monitoring the Performance of Your Portfolio

Once you’ve reviewed your portfolio’s characteristics and those of individual fund holdings, examine the portfolio’s overall results during whatever time period you’ve chosen. (The longer the better! Short-term performance trends are often little more than noise.) How do these returns compare with the benchmark you’ve established for this portfolio and the long-term returns you’re expecting?

Be realistic

Of course, your portfolio isn’t going to return exactly what you need each and every time you examine it; the idea is for the portfolio to average out to that expected return figure over time. So if your portfolio has not met your average required return over whatever time period you’ve chosen, don’t panic. Conversely, if your portfolio has returned more than you expected, don’t go on a spending spree.

However, if your portfolio has suffered losses, make sure those losses are within the acceptable range you set forth in your investment policy statement. If not, your portfolio may have more risk in it than you think, and you may need to re-evaluate your holdings.

To illustrate ...

Let’s take an example. Say you own shares of a total stock market fund, a total bond market fund, a high-yield bond fund, and an emerging markets bond fund. To understand why your portfolio behaved as it did, turn to your individual holdings.

Maybe one or two of your investments fell short of expectations while others returned more than you expected—understand why. Perhaps stocks were in favor during the period, so your equity holdings did better than your bonds. Put the performance of your investments in context.

The best way to do that is to compare your returns with those of an appropriate benchmark—the benchmark you laid out for each investment in your investment policy statement.