How to measure your portfolio's return honestly
intermediate
Automated material · TradeAlmanac editorial deskPrepared by a language model from our stored data and checked by an editor.
Содержание · 4
The simplest way to measure a result is to compare the balance at the start and at the end. It gives the wrong answer for everyone who tops the portfolio up.
Why the simple method fails
A contribution increases the balance without being income. A portfolio that doubled through contributions will show a doubling even at zero return.
Two correct approaches
A time-weighted return does not depend on cash movements and is therefore comparable with an index. It answers "how did the investments perform".
A money-weighted return accounts for how much was invested and when. It answers "how did you personally perform", including decisions about when to contribute.
What to compare against
A total return index in the same asset class proportions as the portfolio — The benchmark: what to compare your result against honestly.
What to account for
Commissions and taxes. A return before costs is not a return — Fees: small numbers that decide the outcome.
Inflation, if the question is about purchasing power — Real return: how much actually remained.
The drawdown: a result without the path to it is incomplete — Drawdowns: why duration matters more than depth.
Prepared by a language model from our stored data and checked by an editor.
How we use language modelsSimilar articles
- When to change a strategy and when to sit tightTelling a broken approach from an ordinary bad patch is difficult and necessary. There are checkable criteria.
- How many securities to holdToo few is concentration; too many is an index with extra costs. Where the boundary lies.
- A trading journal: why no learning happens without oneMemory rewrites the past into a convenient shape. A note made before the outcome is the only defence.
- The value approach: buying below what it is worthLooking for a gap between price and value. It requires a valuation of your own — otherwise it is just buying whatever is cheap on multiples.