Understanding how your investments are performing can be tricky, as it depends on how you are evaluating them, what you’re comparing them to and where you get your information from. Your reference or benchmark can be the market state, inflation, your financial status and goals, or industry standards. There are two types of performances: underperformance, where the investment performs less than your benchmark or your point of reference, or outperformance, where they perform better than your benchmark. Below are different ways to help you evaluate your investments.
Evaluate your performance against benchmarks in the industry
The benchmarks are usually put into place and defined by the Investment Company and manager of the unit trust, who will regularly update you regarding investment news, your investment’s performance, and potential future projections. These benchmarks are the official ones used to evaluate the investment portfolios, and need to match the investment goals of the unit trust. These benchmarks also allow you to evaluate the performance of comparable products and compare to yours. This however, is not the best option to assess whether a mutual fund is the best way to achieve your financial goals, which is why it is important to measure against your personal financial targets.
Performing better than your benchmarks (outperformance)
The first step is to determine your financial goals and the kinds of returns you desire. In general, the higher the return means that the risks will also be considerably higher. Ideally, your goals should be similar to the estimated long-term returns of the different types of existing assets, such as cash, bonds, property, and shares NfmGame.
If you want a high return, you will have to be willing to take more risks such as equities. It is important to note that a risky asset will have a fluctuating value over a brief period of time. Taking the risk means that there is the possibility of losing some capital. A less risky option would be to invest in an open-ended mutual fund (money market), or fixed deposits. These however, rarely offer returns that take into account inflation rates in the long term.
Your investment performance will vary
Despite the increasing value of your investment in the long run, you may feel uneasy with the fluctuating returns on investment. For instance, consider the following scenario: one of your investments is yielding a return of 11%, after positive performances at each quarter over the period of one year. Another of your investments also yields 11% return, except that this one had fluctuating performances at each quarter. Despite the fact that both had the same returns, they were not growing in a similar manner, with one fluctuating more than the other. This shows that doing an evaluation at different times will show different performances, in spite of the end result being the same.
A decline in market stock prices, that is, a downturn, is not necessarily cause for panic. You can easily regain the lost capital during an upturn, by reducing your losses during a downturn as much as possible. This could allow you to decide whether to let go of your capital or to preserve it.
Market downturns are not uncommon. Even with a negative return on your investment, you can still have an investment that outperformed your benchmarks. This applies especially if you protect your capital. That being said, market downturns can be a problem for you if your goal is to have steady returns on investment Business to Mark.
Evaluate performance by comparing to the market cycle
It is advisable to check out your investment manager’s portfolio and past records to get a better idea of what to expect with your investment. Your assessment timeframe should ideally be a long period of time that will allow you to see your performance at various market cycles.
Make use of tools such as fact sheets from the unit trust to evaluate your investment. They can easily be provided by your investment manager or can probably be found on the website, and they offer information related to expected losses, performance, and statistics about the fluctuating market conditions.