As a financial advisor and portfolio manager, investment performance is probably the most important part of my job. After all, a financial plan isn't worth the paper it's printed on if your investments aren't holding up their end of the bargain. In this post, I will try to give a few tips and tricks when measuring the performance of your investments.
Tip #1 - The start date is key
As you can imagine, looking at how well an investment has done depends almost entirely on the time period you measure it by. Stocks go through peaks and valleys as part of a normal cyclical effect. If you look at the performance of a stock or index, starting at the bottom of the 'valley' and ending at the top of the 'peak', you might think that you are looking at an incredible investment. however if you had started measuring performance from the a 'peak' and measured through to a 'valley', then the exact same investment might look very unattractive.
One of the most common time periods for measuring portfolio returns is 5 years. It is said that a portfolio manager who is looking for a promotion better have some excellent 5-year numbers. That's what makes today so interesting. We are now at the end of February, 2014. That means our 5-year performance of investments would take us back to March 1st, 2009. Remember? It was probably mere days from the absolute bottom of the market after the financial crisis - the absolute perfect 'valley' of our time.
Here's an example, using a popular exchange-traded fund in Canada: XIU. It mirrors the return of the 60 largest companies in Canada. If you look at its 5-year return from today, you see the share price went from return of 99.78% over 5 years. That works out to
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