Top 10 things you should know about portfolio performance

Whether you’re evaluating your portfolio or contemplating making an investment, what matters most is performance.

OK, maybe investors should care more about other things, but in the real world they don’t.

As an investor, you perform in lots of ways. Are you a good saver? Are you a good spender? Are you good at living within your means? Are you good at choosing smart investments? Are you good at controlling your emotions when the market takes you on a roller-coaster ride?

It’s all about performance — but those things are all about you. If you are like most investors I know, you are much more interested in how your investments are performing for you.

Fair enough. Here are 10 things about investment performance you should know and never forget:

1. Total performance

You’ve got to know how you are doing performance-wise. Otherwise, how will you know if you are in the ballpark of reaching your goals? And how will you brag to your friends?

At least once a year, calculate the performance of your whole portfolio, and write this down for future reference. Resist any temptation to focus only on a few assets that are doing well. What really matters is the package.

2. Don’t extrapolate

Maybe you were up 10% last year. That’s fact. The danger is thinking that’s what you can expect in the future and running the numbers out 10 or 20 or 30 years to conclude that you’ll be on top of the world. Such a fantasy might lead you to stop saving money — which would be a big mistake.

3. Time matters

Performance figures based on 50 years of data are much more meaningful than those based on 10 years, five years or six months. Not every asset class has a long history, of course, and we have to do the best we can with the data we have.

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