Regularly evaluating your investment performance is essential for ensuring that your portfolio remains aligned with your financial goals and is making steady progress. Investment performance can fluctuate due to market conditions, changes in individual investments, or shifts in your personal goals, so it’s crucial to monitor and adjust as necessary.

1. Performance Metrics

To evaluate your investment performance, it’s important to understand and use several key metrics:

Total Return:
- Total return measures the overall performance of an investment, including both price appreciation (the increase in the value of the investment) and any income generated, such as dividends or interest. It gives a complete picture of how much you’ve earned from an investment over a specific period.
- Example: If you invest $1,000 in a stock and the stock price increases by $100 while you also receive $50 in dividends, your total return is $150.
Annualized Return:
- Annualized return shows the average return per year over a specified period, taking into account the effect of compounding. It’s useful for comparing investments that have different time horizons.
- Example: If you earned a 20% return over three years, your annualized return might be around 6.27%, indicating the average yearly growth rate.
Risk-Adjusted Return:
- This metric evaluates how much return you’ve earned for the amount of risk taken. Investments with a higher return but significantly more risk may not be ideal compared to those with a solid return and lower risk. Metrics like the Sharpe Ratio help quantify risk-adjusted returns.
- Example: A portfolio that returns 10% with low volatility may have a better risk-adjusted return than one that returns 15% but has high volatility.

2. Conducting Periodic Reviews

Conducting periodic reviews allows you to assess your investment performance over time and make adjustments to your portfolio if necessary. Consider the following steps:

Frequency of Reviews:
- It’s a good idea to review your portfolio at least annually. However, more frequent reviews, such as quarterly, can help you stay more proactive in managing your investments, especially during volatile market periods.
Factors to Consider:
- When reviewing your portfolio, consider changes in your financial goals, market conditions, and the performance of individual investments. If your goals have shifted (e.g., you’re closer to retirement), you might want to adjust your portfolio’s risk level.
Performance vs. Benchmarks:
- Compare your portfolio’s performance against relevant benchmarks, such as the S&P 500 for U.S. stocks or the Bloomberg Barclays U.S. Aggregate Bond Index for bonds. This can give you a sense of how well your investments are performing relative to the broader market or other similar investments.
- Example: If your stock portfolio returned 10% over the past year but the S&P 500 returned 15%, your portfolio may be underperforming and require adjustments.

3. Performance Reporting

Many investment accounts, such as brokerage accounts or retirement plans, provide performance reports that summarize how your investments are doing. These reports typically include important data such as:

Portfolio Summary:
- An overview of your account balance, contributions, withdrawals, and total return over a specific period.
Investment Performance:
- Details of how each individual investment has performed in terms of both price appreciation and income generation.
Allocation Breakdown:
- A snapshot of how your portfolio is allocated across different asset classes (e.g., stocks, bonds, real estate), which is important for maintaining diversification.
Fee Analysis:
- Reports often include information on the fees you’re paying, which can eat into your returns if not monitored.
Example: Jessica reviews her brokerage account’s quarterly report, which shows that her technology stocks have outperformed, but her bond investments have lagged behind the benchmark. Based on this information, she decides to rebalance her portfolio.

4. Action Step: Review Your Investments

To ensure your portfolio is on track, take the following steps to review your investments:

Schedule Regular Reviews:
- Set a reminder to review your portfolio at least once a year, or more frequently if you have short-term goals or are navigating a volatile market environment.
Evaluate Performance Metrics:
- Look at the total return, annualized return, and risk-adjusted return of your investments. Compare your portfolio’s performance against relevant benchmarks to see how well it’s performing.
Assess Alignment with Goals:
- Reflect on whether your portfolio is still aligned with your financial goals. If you’ve experienced life changes or your time horizon has shortened, you may need to adjust your portfolio’s asset allocation.
Adjust as Needed:
- Based on your review, make necessary adjustments to your portfolio. This might include rebalancing, selling underperforming assets, or shifting to a more conservative or aggressive asset allocation, depending on your risk tolerance and goals.

Conclusion

Evaluating your investment performance regularly is key to ensuring your portfolio is helping you achieve your financial goals. By using performance metrics, conducting periodic reviews, leveraging performance reports, and making adjustments as needed, you can stay on track and optimize your investment strategy for long-term success.

Reflection Questions:

How often do you review your investment performance, and do you compare it against relevant benchmarks?
Are your current investments aligned with your financial goals and risk tolerance, or do they need adjustments?
How comfortable are you with the balance of risk and reward in your portfolio, and what steps could you take to improve performance?