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Are You Measuring Your Investments All Wrong?

February 28th, 2024 | 3 min. read

By Advance Capital Team

man checking investment performance

It’s good to know your investment portfolio’s return. But without any context, it really doesn’t mean anything. You can’t tell if it’s good or bad, better or worse.

So, what’s the correct investment performance measurement?

As part of Advance Capital Management’s investment management service, we aim to navigate clients through the complexities of investing and ensure their portfolios align with their unique financial goals and life circumstances.

We know understanding how to measure the success of your investment performance is crucial in this journey. It goes beyond just looking at numbers; it’s about whether or not those numbers reflect your personal objectives, risk tolerance and future aspirations.

Let’s explore the key components of measuring your investment performance appropriately.

This article covers:

  • Portfolio performance
  • Achievement of financial goals
  • Confidence in your future and satisfaction with your financial life

Portfolio performance: beyond the surface numbers

When evaluating your portfolio’s performance, it’s tempting to compare your returns directly to well-known benchmarks like the Dow Jones Industrial Average or the S&P 500. After all, it’s what every media outlet uses to explain “how the market is doing.”

However, this comparison can be misleading due to the unique composition of your portfolio. Your investment strategy should be tailored to your personal goals, risk tolerance and time horizon, which means your portfolio is likely diversified across different asset classes.

Rather than maintaining a portfolio comprised solely of stocks, akin to the Dow and S&P 500, your investments likely include bonds and other asset classes. Thus, comparing your portfolio to these stock-only benchmarks is essentially comparing apples to oranges.

In other words, an appropriate benchmark matters. A diversified portfolio is supposed to mitigate risk while aiming to achieve steady returns over time. Therefore, comparing your portfolio to a single market index doesn’t account for the lower risk you may be taking on.

You want to compare to a benchmark that gives you a more accurate picture of how well your portfolio is performing relative to its designed risk and allocation goals.

To truly understand how well your investments are doing, consult with a financial adviser who can clearly explain which benchmark is most appropriate for comparing your portfolio’s performance and the reasons behind this choice.

Achievement of financial goals: the true measure of success

Your financial journey is about more than just generating returns; it’s about achieving your personal and family goals.

Whether it’s buying a home, funding your child’s education, securing a comfortable retirement or leaving a legacy, the real measure of investment success is how well your portfolio facilitates these objectives.

That’s why we regularly review our clients’ financial plans to ensure that their investments are on track to meet their desired milestones. This tailored approach helps adjust for life changes, economic shifts and any new goals clients wish to pursue, keeping their investment strategy aligned with their evolving needs.

Confidence in your future and satisfaction with your financial life

Lastly, your sense of financial well-being can also be considered a good investment performance measurement. You should feel good about your financial situation and not stressed about the future.

Knowing that your investment strategy is designed with your long-term well-being in mind provides peace of mind and confidence to face the future, regardless of short-term market fluctuations. This includes how informed and supported you feel in making financial decisions and how well your financial plan integrates with your life’s aspirations.

So, when selecting a financial adviser to oversee your investments, consider not just their qualifications but also how comfortable and supported you feel working with them. This relationship should empower you with confidence in your financial future and satisfaction in your financial life.

In addition to investment management, an adviser can educate you on financial principles, provide personalized guidance and serve as a reliable source for all your financial questions.

Bottom line

Measuring the performance of your investments goes beyond comparing returns to broad market indices. If your portfolio is on track to meet your financial goals, you feel confident in your financial future, and you feel satisfaction with the services you receive, then the performance is likely pretty good.

Unsure about your investment performance? Book a complimentary financial consultation with an Advance Capital financial adviser today. In just a 30-minute call, we’ll evaluate your portfolio and take a look at your entire financial picture – all at no cost or obligation to you.

Advance Capital Team

Advance Capital Management is a fee-only RIA serving clients across the country. The Advance Capital Team includes financial advisers, investment managers, client service professionals and more -- all dedicated to helping people pursue their financial goals.