Focus on long-term results when assessing your investment performance

TUESDAY, FEBRUARY 21, 2023

Short term investment performance generally gets most of the headlines, but it’s the long term that matters. The below graph models the impact of a rate of return differential on your portfolio over 20 years:

Capital invested with a 4% return doubles over twenty years, while a 6% return triples the original capital and an 8% return multiplies the opening capital by over 4.5 times.

Reviewing investment performance with our clients and their advisors sometimes yields important insights and ensures that there is a sense of accountability for performance.

In recent meetings with advisors, we noted that:

 1.     Investors focus on medium to long terms results rather than individual years. Using a time frame like 10 years ensures that you have been through good and bad years and can prepare a meaningful analysis. Moving from advisor to advisor or from strategy to strategy based on short term results can lead to disappointing performance.  No investment style overperforms every year and no advisor is able to always keep up with short term market performance.

 2.     Develop a reasonable expectation by developing your own yardstick - or ask an advisor to compare performance against an appropriate benchmark. This process should include taking accountability for any decisions you insisted on. Using broad benchmarks provides a good starting point for discussions. The 10 years ended December 31, 2022 had the following returns:

3.     In reviewing performance consider what can be learned about overall asset allocation. Did you error in selling equities at low points? Did you aggressively invest in equities multiple years of over performance? What can be learned from the past decade that will help performance over the next decade?

Please reach out if you have any questions.