How is your portfolio REALLY performing?
Do you know how your portfolio performed last year? Not how individual assets performed, but how all of them performed together? Does your performance take into account fees and expenses?
It turns out, that investors who regularly contribute to their accounts (practicing dollar cost averaging) and investors who regularly rebalance their accounts have an incredibly difficult time actually calculating portfolio returns on their own, and very few investing platforms give you access to such information. In fact, many professional money managers are slow to provide this information as well.
Perhaps the reason for withholding such information is because you’ll be disappointed with what you learn. When DIY Fund founders Wendy and Eric Nissan calculated these returns for their own portfolio, they found that their professionally managed portfolio siginificantly under-performed their benchmark on a risk adjusted basis.
Because of that expensive lesson, the DIY Fund founders committed to providing users access to their portfolio’s true risk adjusted returns. Instead of merely providing returns for individual assets, or changes in account value, the DIY Fund provides accounts for buying and selling activity, expenses, dividends and other income received and more to accurately calculate portfolio performance. The DIY Fund does this, so DIY investors can wisely allocate their investments to maximize long run risk adjusted performance.
True portfolio performance has the power to help investors think wholistically about their portfolio, and to focus on long term strategy.
Total portfolio performance
Portfolio goals should inform individual investments
The world is full of “hot stock tips”, advertisements urging you to buy gold now, late night real estate gurus promising 200% return on investments, and mutual funds and bond funds competing for your business. It’s easy to let loud voices and recent events to cause smart investors to chase past performance. However, when you understand your portfolio’s returns, it becomes much easier to contextualize the decision to purchase an individual investment.
Buying more of an individual stock may increase returns, but it comes with a high risk. Purchasing bonds tends to decrease portfolio volatility, but it usually comes at the cost of portfolio returns. Each asset classoffers different value to investors, and when investors understand how a new investment is likely to affect their portfolio’s performance, it becomes easier to make smart investing choices.
Understanding portfolio performance leads to long-term thinking
Dealing with the emotional aspect of investing is never easy, but understanding portfolio performance helps investors think long term. When an investor’s focus is on true portfolio performance, she can make decisions that are right for the long run, and not just the next few months.
Even in a low-yield bond environment, like the one we face today, some investors should rebalance their portfolio’s towards more bonds to achieve their target asset allocation. This is not an easy decision, but it is a decision that is likely to yield the best possible long term performance.
At any given time, one part of your portfolio will always underperform another part of your portfolio (if that’s not true, then your portfolio requires more diversification). When investors focus too much on the individual asset performance, the scope of their thought tends to be on recent history. When investors focus on portfolio performance, their thought tends to be long-term, strategic and forward looking.
To enable long-term, strategic decision making, DIY Fund is committed to providing the best information to investors, including their true portfolio performance.
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DIY.FUND was developed by a team of financial industry veterans. While building portfolio and trading systems for multi-billion dollar hedge funds, we realized the same tools are not available to the individual investor…