How to Measure Investment Performance

investment performance
August 5th, 2021 0 Comments

Investment management is a complex process in a competitive industry, and keeping a handle on one’s investment performance is crucial. Investors and investment management companies need to know how a fund (or fund manager performs), so having a grasp on relevant financial market benchmarks will bring peace of mind and prosperity.

Knowing the return of an investment or that of a fund manager is one part of the process of evaluating the performance of investments. Investors will want to know exactly how the fund manager achieved the performance; was it skill, or was it good luck? Could it be a result of extreme risk-taking? We measure investment performance by using several key methods.


Have I Chosen Well? Only Time Will Tell

Choosing your investments is only the start of your investment journey. It is through the robust evaluation of investment performance that investors and investment companies can make informed decisions.

Time will tell, and by monitoring your various investments, you will see how much progress they are making. By “progress,” we are referring to a steady increase in the overall value of your portfolio (even is despite one or more investments within your portfolio decreasing).

Investment performance should be measured holistically, so choosing the right methods of evaluation or fund manager is crucial.


Ways to Measure Investment Performance

As an investor, how you measure your investment portfolio will determine how your efforts bear fruit. By using a variety of metrics and techniques, you can identify and strengthen any weak areas and allow yourself to feel confident in your portfolio’s progression.


One of the ways we evaluate an investment’s success is by looking at its hit rate. This is where one measures their attempted investments against their profitable investments. It is a method that applies mostly to retail-based companies, where product sales drive profits and share values.

The aim is portfolio diversification, but many inexperienced investors inflict damage on their investments when they choose a hit-and-miss method. The result is often a poor market performance over the long term. It is a metric to keep in mind while reviewing your portfolio, but not something that should fully guide your buying and selling choices.

A far smarter approach is to make infrequent investments at higher bets, and Warren Buffet is a firm believer in investing in value-based stocks. He believes that investors should only buy stocks in businesses that show solid earning potential. He also prefers those that have strong fundamentals. They should also exhibit the potential for continued growth. Companies that distribute dividend earnings to shareholders are among their favorites.

Slugging Rate

Investing is about the outperformance of the gains for your overall portfolio. Your slugging rate will gauge how much profit you make or any losses you incur. It’s important to know going in if your share value will fluctuate by 1-2% or 10-20% so you can determine how risky your investment is.

With that knowledge, you will be able to gauge how your investment is performing and know when it is acting out of character.

Holding Period

Many investors prefer to hold onto their winners and let go of their less profitable investments. You might be tempted to offload a stock the moment it drops in value. But just because its value has dipped, particularly shortly after you bought it, does not necessarily mean all is lost.

Fluctuation is less important when it’s an investment you intend to hold long-term. However, stocks that drop by half and more should be taken more seriously. As with any big decision, review every situation before making the choice to hold onto your stock or to let it go.

Knowing when to buy and sell (or seeing that your fund manager knows) will give your portfolio growth a pattern

Investment Performance Over a Specific Period

Most investors measure their investments over a specific period of time. The general idea is to beat the market in the long haul.

Most investors try to beat the market over time, so it would make sense to measure your portfolio’s performance against broader market indices. This way you can either increase your mutual fund exposure or stop investing altogether.


Growing Your Wealth Can Be Exhilarating

The financial markets are exhilarating, and you can easily get swept up in the excitement of a fast-paced industry. But it can also be rather dangerous territory. Growing your wealth over the long term can be intimidating, especially when you have no control of how a company performs. The secret to your wealth growth long-term is to continually adapt as companies shift to achieve the best returns.

As you begin and continue to manage investment performance,  all the measures you decide to use will depend on your needs and what kind of investments you have in your portfolio.


What Type of Investor are You?

A major factor to consider is what sort of investor you are as well as your priorities. Are you in for the long-haul or the short-term?

If you are sitting on stocks you are thinking of selling short-term to make a profit, it is important to know how the market is doing at the time you are ready to sell. Is it in an upswing or has started to dip? You also need to know whether the stock has reached a stalemate. Are you an investor looking to buy and hold for a long time? You will in all probability be interested in a pattern of earnings and growth for future expansion and profit.

More cautious investors could be those individuals reaching their golden years. They might be interested in income-producing investments. The interest rates and certificates of deposit could pay handsome dividends.

One might want to pay attention to the current market rates and make evaluations of yields from stocks and mutual funds. These would be investments bought specifically for income.

If you are looking forward to the maturation of your existing bonds, you might be disappointed at reinvestment opportunities and be tempted to buy lower-rated investments in the hope that they will give a higher future yield.

Whatever your situation or reasoning behind your investing behavior, keeping an eye on your investment performance allows you to make wise and informed financial decisions.


Gaining Momentum

As you gain momentum as an investor, comparisons of your returns over a period of time will give you a clearer picture. You will get an idea of which returns are strong and which ones are not. Understanding how your money is doing will start to feel like second nature.

Year-on-year stats will assist in finding out which investments looked healthy in a range of varying markets. This can also be a deciding factor when you make those crucial investing decisions.

Many investors feel that making their investment decisions over the long term pays off. Long-term investments will usually ride the ups and downs of any volatility in the markets.


Saddock Is Here To Help

At Saddock Wealth, our years of wealth management experience can help guide you in managing your investment performance. Whether you are an experienced investor or just getting started, we have the knowledge and resources to guide you as you navigate a sea of investment evaluation methods.

Schedule a meeting here and we can discuss your best options.



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How to Measure Investment Performance
Whether you're a beginning or seasoned investor, it's important to monitor your investment performance as your money grows.
Investment Management, Saddock Wealth
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