Investment in the portfolio is a risky matter. While assessing your portfolio make sure that your goals are met. There is a secret ingredient that helps you to check whether your portfolio is doing well or not. Still, investors end up in taking wrong investment decisions because they use wrong or incomplete criteria to evaluate the performance. There is a non-negotiable performance indicator that one must have a look at while assessing their investment portfolio performance.
Let us study them:-
- Performance against investment goals: One of the most effective ways of checking how your investments are doing is by arranging them against your investment goals like why did you select those assets as your priority for investing? Was the return periodic? What is the purpose of such an investment is it for marriage or education? Was it for an emergency or medical corpus? etc. If your portfolio strategy meets your overall investment decisions in terms of risk, return, or wealth creation then the investment decision may be right. If it doesn’t meet asset individual performance against the overall investment objectives then there is a common mistake and it can result in wrong decisions.
- Performance against stated investment objectives: Sometimes your investment meets your objectives but they may still be underperforming. Let’s take the example of mutual funds however if your mutual fund value will depreciate in the long run compared to the costs. Then the mutual fund is underperformed even if it meets the stated objective.
- Performance against industry benchmarks or standards: Before making every investment you should assess against its respective industry’s benchmarks, standards, or top performers. Most of the funds will have a corresponding stock index to benchmark against them. For example, bonds have ratings by the rating agency which shows health and default prospects.
- Fluctuations during depression phases: Another way in which you can assess your portfolio performance by seeing how it works during the recession period or bearish period. During bullish times most of the assets show an upward trend and reverse happen during the recession period.
There is no particular thumb rule for investment decision assets that are highly reactive to market sentiments. While assessing your portfolio investments make sure that your assets meet with your investment decisions.