Performance Evaluation

Performance evaluation, or portfolio evaluation, is the process of monitoring the performance of your financial assets by comparing them to the relevant benchmarks. Unless you regularly monitor your portfolio’s performance, you will not know how well you are moving toward achieving your personal goals. If an asset in your portfolio consistently underperforms its benchmark, you may want to sell that asset and purchase another asset that more closely follows its benchmark. By making adjustments to your portfolio along the way, you can achieve your financial goals more quickly.

To evaluate your portfolio’s performance, you should calculate the following:

1. The period returns on each asset (the return after all taxes and fees have been accounted for).
2. The index returns on each asset’s benchmark (the return on the benchmark whose performance most closely mirrors the performance you are trying to achieve).
3. The difference between the asset returns and benchmark returns.
4. The weight of each asset or fund in the overall portfolio.
5. The overall portfolio return.

With this information, you can evaluate how each of your funds or assets is performing versus benchmarks; you can also evaluate how well the portfolio is performing as compared with the goals outlined in your investment plan.

Portfolio Reporting

In the October 1970 general conference, Elder Thomas S. Monson gave the following counsel:

When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates. (“Sheep, Shepherds, and Sheepherders,” New Era, June 1977, 20)

Portfolio reporting is the process of reviewing your portfolio’s performance with everyone who is affected by the portfolio’s performance: you, your spouse, and any other individuals. If you are responsible for managing your family’s portfolio, you should report performance to your spouse at least quarterly. If others are helping you manage your portfolio, they should report performance to you and your spouse at least quarterly as well.

 

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