In the backdrop of the ongoing pandemic situation, the exchange is anticipated to show volatility more and investors are worried about their investments. While assessing your investment portfolio, ensure your goals are met, investments are exceeding industry benchmarks and these don’t present an undue risk to your financial health. Investors often make the wrong investment decision supported portfolio performance as they use an incomplete basis. Non-negotiable performance criteria should also be considered while assessing investment portfolio performance.
Following are the four performance-based metrics for evaluating investments;
Performance against industry benchmarks or standards
Benchmarks are great, but they’re only useful if they’re accurate for the industry that you’re working in. Every investment you create is often assessed against its respective industry’s benchmarks, standards, or top performers. To indicate health and default prospects of bonds, there are ratings by rating agencies. Most funds will have a corresponding index number to benchmark them against. Gold investments will be benchmarked against not only national exchange prices but also global prices.
Performance against investment goals
By holding investments up against investment goals are taken into account as the foremost effective ways to know how investments are performing. If the investment strategy was to hold an overall portfolio that meets overall investment objectives associated with returns, risk, or wealth creation, then don’t measure each asset’s performance against overall investment objectives. This is often a standard mistake and might end in wrong decisions.
Performance during bearish phases
By checking how the portfolio is doing during recessionary or bearish phases of the economy may be considered joined the foremost important ways in assessing the portfolio’s performance. Most assets tend to follow the uptrends dictated by the larger economy at the time of bullish. As a thumb rule, any investment or asset class that disproportionately amplifies the downswings of the larger economy and causes disproportionate losses to the investor are to be avoided. In other words, asset classes that are highly volatile and reactive to bearish sentiments are to be avoided.
Performance against stated investment objectives
Sometimes investment meets the investment objectives, but they could be underperforming with regards to the investments’ stated objectives. For instance, investors have invested to safeguard investor wealth within the future is being set because of the objective of the investment trust. If the mutual fund’s value has shown decline within the long term compared to costs, then that investment trust investment has underperformed while it’s going to have met investment objectives (which may be different from the fund’s stated objective).
It is important to ensure that while assessing the investment portfolio, the investment goals are met and don’t present an undue risk to the financial health of the investor.
