diversified portfolio

You and Your Investments: How Are You Doing? Part II: Your Portfolio and Its Parts

Measuring your portfolios success

Part II: Your Portfolio and Its Parts

In our last post, we discussed why it’s best to avoid comparing your own investment returns to “the market” or the latest popular portions of it. There’s one more misleading measurement that can trip up an investor:

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Pursing the market’s expected returns
(by investing in asset classes with higher expected returns but higher volatility)


Managing the risks involved
(by investing in asset classes with more stability but lower expected returns)


Because this equation is unique to you and your goals, it’s important to not over-emphasize the specific performances of the individual components involved.

A key factor to understand is: How much of each asset class (and the market as a whole) are you invested in?

If a significant chunk of your portfolio is sitting in cash, earning next to nothing, you’re going to underperform the market when it’s moving upward.

On the flip side, while some of the more “exotic” asset classes, such as real estate, have offered solid long-term returns, we are NOT recommending that you pile into them beyond what your financial plan calls for. The asset classes that tend to deliver the highest expected returns over time also tend to exhibit the widest mood swings along the way.

A Sensible Approach to “How’s my Portfolio Doing?”

So what does work for periodically checking the pulse of your portfolio?

Properly constructed and diligently maintained, a globally diversified portfolio should help you achieve your financial goals while smoothing out your portfolio’s performance … at least to the extent possible in ever-volatile markets. Just as it’s much easier to spot the shoreline in calmer seas, a smoother-riding portfolio allows for more meaningful “How am I doing?” assessments.

But one of the disadvantages of a personalized portfolio is that it defies simplistic comparisons. In fact, behavioral finance even has a term for the pain you feel when your custom portfolio’s performance varies from popular benchmark returns. It’s called tracking-error regret.

To best assess your portfolio performance in proper context, we turn to two important measurements that aren’t so easy to “just eyeball,” but that represent the best measuring sticks available. These are Time-Weighted Weights of Return (TWR) and Internal Rates of Return (IRR). Fortunately, we’ve described these in our past blog, “Weird Words, Worthy Ideas,” so we’ll direct your attention there.

Could you use some help with your own “How am I doing” analyses? Connect with us.

pulitzerSAGE Serendipity:  On Monday the 2016 Pulitzer Prizes were announced. The Associated Press won the Public Service Award; their stories on labor abuses relating to how we get our seafood resulted in the freeing of 2,000 slaves and inspired reforms. The play Hamilton won for Drama. The New York Times photo team won for their heartbreaking images of the migration crisis.  Musician/composer Henry Threadgill’s In for a Penny, In for a Pound, with his quartet Zooid, won for Music; check out a sample here on NPR.org.  One of the great things about the Pulitzer website is having all this content to peruse as well as being able to access the finalists whose amazing work did not win. Of course there’s also the prizes from years past … you can get stuck on this site for hours.



Sheri Iannetta Cupo, CFP®, Founding Partner (Retired) & Director
[email protected]

SAGEbroadview Wealth Management is a Fee Only firm offering ongoing financial planning and portfolio management, with tax planning woven carefully throughout our services. We work virtually across the country, with offices in Farmington, CT, Morristown, NJ, and Burlington, MA.