Evaluating Your Portfolio
Now, how do you evaluate your portfolio’s performance? The best way to start is by looking at the origin of that portfolio. At some point, you sat down with your advisor and laid out your unique goals, needs, risk tolerance and time horizon.
Your advisor built your portfolio based on that information. Efficient portfolios are goals designed to match your return and risk objectives.
Conservative investors should find themselves in the lower left-hand corner in the above chart. Speculative investors are in the upper right-hand corner (100% stocks). Which one are you? Once defined, your advisor should be able to show you clearly whether you are on track in reaching your goals.
Investing is about taking risk. The most efficient portfolios include allocations to a broad set of diverse investment risks.
If you are a speculative investor, it makes sense to compare your highly concentrated stock portfolio to the Dow or the S&P 500 (“the market”). However, it makes little sense to compare your broadly diversified portfolio—which may include stocks, bonds, real estate and other investment risks—to “the market.”
Encourage your advisor to help you determine where you fall on the risk/reward curve (the “efficient frontier”). If you would like an outside yardstick, ask your advisor to create a composite benchmark that reflects your total portfolio makeup. And remember that it’s not necessary to beat your benchmark month in and month out to achieve your goals. Craft a well-thought-out investment plan and stick to the plan.
CMG is an ETF strategist specializing in tactical investing, using trend-following and relative-strength-based strategies. CMG Chairman CEO and CIO Stephen Blumenthal also writes for Forbes and speaks on various radio and TV shows. Contact CMG at 610-989-9090 or at [email protected]. Click here to receive his free weekly e-letter. See important disclosure information here and here.