Exploring Key Metrics for Assessing The Performance Of Your Portfolio
Wednesday, Dec 6, 2023
The investment portfolio needs to be audited and evaluated on a regular basis to ensure that the financial goals are met. Not many have the clarity of how to get the same done. There are several metrics that need to be evaluated to understand where your investment portfolio is heading. To help you out, we are going to discuss the key metrics that need to be employed to evaluate the investment portfolio correctly. Let’s get started with the same.
Key Metrics For Portfolio Assessment
Below are the primary metrics that can help you evaluate your investment portfolio a lot more clearly:
1. Performance Assessment:
It is important that you understand the performance of your portfolio consistently. It can help you understand how successful it has been. If you are thinking about how it can be done, then the popular metrics used to serve this purpose are XIRR (Extended Internal Rate of Return) and CAGR (Compound Annual Growth Rate).
With the assistance of XIRR, you can track not only the timing but also the amount of cash flows. It can help you get a good hold of all the investments and withdrawals. With CAGR, you get a lot of accurate figures of growth rate for a specific time period. This shows how both metrics can help you measure the portfolio performance and help in further strategies.
2. Mistakes To Avoid
Performance assessment can be critical, and a single mistake can lead to disaster in decision-making. The first and the most essential mistake to avoid has to be solely focused on absolute returns. If you do that, then you might not be able to check the stock performance and other aspects of the same. Make sure to dig in deep and check every investment in detail to understand risk-adjusted returns for better decision-making.
3. Genuine Expectations:
When you are going to evaluate your investment portfolio, make sure to do it with realistic figures in mind. Markets can be volatile, and this can certainly affect the returns from time to time. So, always have a long-term vision in mind. It can help you set realistic goals and make it easy for you to address the performance as per the present market condition. It can help you avoid unnecessary panic as well.
4. Keep Inflation In Mind:
The most essential aspect to keep in mind has to be inflation. In general, everybody wants to invest in order to be on top of inflation. We are all aware of how it can just disappear the purchasing power after some time. Therefore, if your portfolio does not beat inflation, then there may be a problem. You need to see how your portfolio has performed relative to the inflation rates. It could be helpful for clarity if your investment is making sure you maintain wealth rather than preserving wealth. This has an important role in removing inflation from consideration.
Final Thoughts
If we have clarified the key metrics to be followed to assess performance of the investment then, this was my aim. It can be instrumental in assisting you to make the right decision and increase your returns. Ensure you do so regularly and enable you adjust the components required in your portfolio. Green portfolio is one of such platforms where you get assistance portfolio management. It offers you customized PMS or portfolio management services, which can help you reach all your financial goals. Good luck!
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