How To Know Your Portfolio Performance?

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How To Know Your Portfolio Performance?
Is There A Way By Which You Can Know Your Portfolio Performance?
Lovaii Navlakhi - 05 September 2023

Is There A Way By Which I Can Know How My portfolio Is Doing?

Before you start investing, you should have a target in mind. The target could be in terms of absolute returns, or relative returns beating a benchmark, or it could be the availability of funds to meet certain goals without compromising on the investments. It’s best that your advisors knows about those targets as they will construct your portfolio accordingly keeping your target objective in mind.

One of the normal expectations of a new investor is to make returns (lots of it), not to lose any money (or beat the fixed deposit rate) and have the option to withdraw at any time a part or the whole of the portfolio.

But we know that there is no single investment product that will meet all these criteria. That is precisely the reason why we need to create a portfolio which has different products for different needs. This also means that the requirement to withdraw funds in a short period of time must be met from the liquid portion of the portfolio, and not a long-term investment instrument, such as an equity fund, even though its performance has been sub-par till date. We all know that the longer we are willing to stay invested in equity funds, the better is our probability of not losing money and achieving long-term growth.

One important thing to remember is that you should never base your investment decisions on the returns over the past one year—any point-to-point evaluation of returns of the past is fraught with huge risks.

As you are investing for the future, your portfolio evaluation should always be based on the overall outlook. If at all you need to use the past as a base, consider rolling returns which normalise the effect of a single point in time for entry as well as exit. Instead use a periodic (say annual) review of your asset allocation and rebalance the portfolio accordingly so that you do not end up making decisions in haste on the basis of either fear or greed.

The author is the MD & CEO of International Money Matters.

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