IFM Monitor and Measure Your Investment Portfolio

For InvestingForMe, monitoring and measuring an investment portfolio refers to the portfolio’s investment performance. How is the investment portfolio doing? Is it helping us to accumulate savings or is it hurting? How do we know if our investments are performing or not?

About 15 or 20 years ago, the investment industry introduced the concept of benchmarks. Benchmarks are rulers used to assess a portfolio’s performance and the level of risk associated with the investments held within the portfolio. As a result, when a managed portfolio’s investment performance is discussed it is often compared to a benchmark or peer group performance. This approach assumes that by using a benchmark or peer group performance, the investment portfolio’s true success or failure can be accurately measured.

Members' Note: InvestingForMe does not use benchmark or peer group performance in assessing the performance of their Sample Portfolios. We prefer to use personalized performance targets when assessing a portfolio’s investment performance. Our reasons are very simple. We believe that as an individual investor, your investment portfolio’s success or failure should be related to your personal financial goals, not some irrelevant benchmark or peer group. InvestingForMe monitors and measures the performance of its Sample Portfolios once a year.

Example:  Let’s say that you’re 30 years old and you have accumulated $30,000 of savings. You plan to keep working for the next 35 years. Your income and expense analysis shows that you can comfortably save and invest $4,000 each year, and your financial goal is to have accumulated $500,000 in savings for your retirement. As a result, you have calculated that your investment portfolio must achieve an average annual rate of return of 4.79% to reach your goal. The 4.79% rate of return should be your portfolio’s benchmark when measuring its annual performance.

Remember: Using a stock market index benchmark or mutual fund peer group to measure your portfolio’s success or failure is inappropriate, unless you are managing your investments exactly like those managing the benchmark or peer group.

If our portfolios have matched or outperformed our required average annual rate of return, then no changes to our financial goals, investment approach, portfolio design, or our Investment Policy Statement (IPS) are required.

If, however, our investment performance is below our required average annual rate of return, then we will monitor the portfolio’s performance more closely. If the portfolio continues to under-perform, then we will review and possibly modify our financial goals, investment approach, portfolio design, or our IPS in an effort to correct the under-performance.

Members’ Note: Our IFM Investment Approach provides a set of guidelines for you to manage your investments toward the achievement of your saving and investing goals. The guidelines give you greater control and continuity of your investment decisions while remaining flexible enough to adapt to changes in your personal circumstances and to changes that affect your investment portfolio. Members should visit our Sample Portfolios section to view the application of our investment approach in the design and management of actual investment portfolios. These sample portfolios are updated each quarter and provide an excellent tool to help investors enhance their investing success.

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