Evaluating Performance | FINRA.org (2024)

Investment planning doesn’t stop once you make an investment. Evaluating the performance of your investments is a critical part of managing—and monitoring—your assets over time.

Effective performance evaluation is a middle ground between “set it and forget it” and incessant monitoring. A yearly evaluation of your investments, at roughly the same time each year, is often enough. An annual review can keep you engaged in your holdings while tracking the progress of your investment goals. It can also help you know when your asset allocation has shifted and it's time to rebalance your holdings.

If you have all of your investments in accounts with a single financial services firm, you might get consolidated statements containing information about all your accounts. However, if you have accounts at several firms, or if you have both tax-deferred and taxable accounts, you might need to look at several different statements to get a complete picture of your total portfolio performance. In addition to sending regular statements, many firms provide online access to your account information, so you can look up the latest values for your holdings any time you like. You might also be able to access your account information by phone.

Generally speaking, progress means that your portfolio value is steadily increasing, even though one or more of your investments may have lost value. You can generally find the current value of each investment online. The value of your investments is also provided to you by your brokerage or financial services firm in the form of regular account statements.

Performance Measures

Here are some common ways to measure performance:

Yield: Yield is typically expressed as a percentage. It's a measure of the income an investment pays during a specific period, typically a year, divided by the investment's price.

• Yields on Bonds: When you buy a bond at issue, its yield is the same as its interest rate or coupon rate. See Bond Yield and Return.
• Yields on Stocks: For stocks, yield is calculated by dividing the year's dividend by the stock's market price. Of course, if a stock doesn't pay a dividend, it has no yield.
• Yields on CDs: If your assets are in conventional CDs, figuring your yield is easy. Your bank or other financial services firm will provide not only the interest rate the CD pays, but its annual percentage yield (APY). In most cases, that rate remains fixed for the CD's term.

Rate of Return: Your investment return is all of the money you make or lose on an investment. To find your total return, generally considered the most accurate measure of return, you add the change in value—up or down—from the time you purchased the investment to all of the income you collected from that investment in interest or dividends. Learn more in this Smart Investing Course:Worth Holding On To? Rate of Return.

To find percent return, you divide the change in value plus income by the amount you invested. Here's the formula for that calculation:

For example, suppose you invested $2,000 to buy 100 shares of a stock at $20 a share. Over the three years that you own it, the price increases to $25 a share and the company pays a total of $120 in dividends. To find your total return, you'd add the $500 increase in value to the $120 in dividends, and to find percent return you divide by $2,000, for a result of 31 percent.

That number by itself doesn't give you the whole picture, though. Since you hold investments for different periods of time, the best way to compare their performance is by looking at their annualized percent return.

The standard formula for computing annualized return is:

In this example, your annualized return is 9.42 percent.

Tip: Use FINRA’s Fund Analyzer to find annual and total return for mutual funds and ETFs. Search online to find annual and total return calculators.

Remember that you don't have to sell the investment to calculate your return. In fact, figuring return may be one of the factors in deciding whether to keep a stock in your portfolio or trade it in for one that seems likely to provide a stronger performance.

Helpful Tips

Whatever type of securities you hold, here are some tips to help you evaluate and monitor investment performance:

• Factor in transaction fees. To be sure your calculation is accurate, it's important to include the transaction fees you pay when you buy your investments. If you're calculating return on actual gains or losses after selling the investment, you should also subtract the fees you paid when you sold.
• Create a single spreadsheet for your investments. If your investments are spread out among different financial firms, it’s a good idea to create a master spreadsheet that contains each investment and its value at the time you undertake your evaluation.
• Consider the role of taxes on performance. Computing after-tax returns is important, including capital gains and losses. This is often helpful to do with the help of a tax professional. Learn more about capital gains.
• Factor in inflation. With investments you hold for a long time, inflation may play a big role in calculating your return. Inflation means your money loses value over time. A number of FINRA’s calculators compute inflation’s impact on savings and investments.
• Compare your returns over several years. This will help you see when different investments had strong returns and when the returns were weaker. Among other things, year-by-year returns can help you see how your various investments behaved in different market environments.
• Rebalance as needed. Be prepared to make adjustments when the situation calls for it. In investing parlance, this is referred to as rebalancing.

Learn more about key investing topics.