Assessing the Performance of Your Portfolio

When markets are down, it’s easy to think your mutual fund is underperforming. But assigning a term like “underperforming” to a fund must take many factors into account.

First, should you be in the fund in the first place? A fund that has returned 10% over a certain period may seem “better” than a fund that has returned 3% over the same period, but the better-performing fund may have earned those higher returns by taking on risk that you can’t tolerate.

Second, how is the fund performing relative to other funds in its peer group? Different asset classes can be expected to perform differently because they have different risks. Even the performance of securities in the same asset class can vary. For example, government bond funds perform differently from corporate bond funds.

Third, how is the fund performing relative to its benchmark? Every mutual fund has a legal mandate that limits its investment options. For example, if a stock fund’s mandate is to invest 80% of its portfolio in stocks, portfolio managers cannot move more than 20% of assets to bonds or cash, even in a bear market. Because of this, the standard for measuring mutual fund performance is not positive returns but an appropriate index.

These factors are particularly important to remember after a decade in which double-digit annual returns were the norm because today’s investors tend to have unrealistic expectations.

Do you need help assessing the performance of your portfolio? We can review your portfolio and make suggestions. We’re just a call or email away, and we’re always here to assist.