Tracking Portfolio Performance

Knowing how your portfolio performs helps you make informed decisions. But tracking correctly requires understanding what to measure and how. [DEFINITION] Portfolio Performance: The return generated by your investment portfolio over a specific period, measured in percentage terms and compared against relevant benchmarks. ### Key Metrics to Track **Total return:** Price appreciation plus dividends/interest **Time-weighted return (TWR):** Return independent of cash flows (compares to benchmarks) **Money-weighted return (MWR):** Return accounting for your specific contributions (your actual experience) [KEY] Most investors should focus on time-weighted returns for comparison purposes and money-weighted for understanding their actual wealth growth. ### Setting Up Tracking **Manual tracking:** - Spreadsheet with positions, cost basis, current values - Update monthly or quarterly - Calculate returns manually **Automated tracking:** - Brokerage statements and dashboards - Portfolio tracking apps (Personal Capital, Morningstar, Yahoo Finance) - Aggregators that link multiple accounts [TIP] Your brokerage likely provides free performance tracking. Check your account statements for time-weighted and dollar-weighted returns. ### Benchmark Selection Compare your portfolio to appropriate benchmarks: - **All-stock portfolio:** S&P 500 (VOO) or Total Market (VTI) - **60/40 portfolio:** Blend of stock and bond indices - **Target-date fund:** Compare to similar target-date funds - **Individual stocks:** Compare to sector ETF or S&P 500 [EXAMPLE] Your 70/30 portfolio returned 12% this year. S&P 500 returned 18%, but a 70/30 benchmark returned 11%. You're actually outperforming your appropriate benchmark despite "lagging" the S&P 500. ### What to Review **Monthly (quick check):** - Account balance - Any unusual activity - Contribution confirmation **Quarterly (deeper review):** - Performance vs benchmark - Allocation drift - Rebalancing needs - Fee analysis **Annually (comprehensive review):** - Full-year performance - Progress toward goals - Strategy assessment - Tax planning for realized gains ### Understanding Your Returns [FORMULA] Simple Return = (Ending Value - Beginning Value + Withdrawals - Contributions) / Beginning Value For accurate tracking with cash flows, use a tool that calculates Internal Rate of Return (IRR) or Time-Weighted Return. ### Common Tracking Mistakes [WARNING] Avoid these errors: 1. **Wrong benchmark:** Comparing a balanced portfolio to 100% stocks 2. **Ignoring dividends:** Total return includes reinvested dividends 3. **Short-term focus:** One quarter doesn't define success 4. **Chasing performance:** Switching to last year's best performer 5. **Not tracking at all:** Flying blind without data ### Performance Red Flags When to investigate: - Significant underperformance vs appropriate benchmark (3+ years) - Unexplained losses - Higher fees than comparable alternatives - Unusual volatility for your allocation [EXERCISE] Your portfolio returned 5% over 3 years. The S&P 500 returned 35% over the same period. Should you be concerned? |ANSWER| Need more context. What's your allocation? A 30% stock / 70% bond portfolio shouldn't match the S&P 500. Compare to a 30/70 benchmark. If your 30/70 portfolio returned 5% and a 30/70 benchmark returned 8%, then you have underperformance to investigate. Benchmark selection matters enormously. ### Performance in Context Remember: - Returns vary widely year to year - Trailing returns are history, not prediction - Risk-adjusted returns matter more than absolute returns - Your progress toward goals matters most [SCENARIO] You check your portfolio daily and feel stressed every time it drops. How should you adjust your tracking habits? Daily checking is counterproductive for long-term investors. Studies show more frequent checking leads to worse decisions (panic selling, overtrading). Switch to monthly or quarterly reviews. If you can't resist daily checks, at least don't act on them. Your checking frequency should match your investment horizon.