Measure Success

Investors want confidence their investment strategy is successful and that they’re making good decisions.  IS it possible to measure the success of your portfolio—-AND also hold your advisor accountable when it deviates from the success measurement?!!   Yes—–it’s absolutely possible.   You don’t have to know everything to be a successful investor.  However, you do have to know the answers to the right questions.  

Here’s three questions to know the answers to in order to measure the success of your investing:

1)     Have you identified your personal risk tolerance?

This is an academic and scientific number that helps you compare various investments scenarios.  It is essential that risk is not simply dispatched in generic terms and left without being quantified.  Remember, you cannot successfully control something that you cannot measure.  Risk must be measured to be used properly.  It is important to have your existing portfolio analyzed by an independent coach to properly identify the types and extremes of risk in your current investments. 

2)    Do you know how to measure diversification in your portfolio? 

Everyone knows it is prudent to diversify, buy how do you measure it?   Academic and economic scientists use a very specific measuring tool called correlation to determine if your portfolio has been properly built.  If you do not know specifically, chances are you are not truly diversified.  In the typical portfolio, assets tend to move in a step-rate fashion so that when once crashes, they all crash.   To diversify the right way, you must be able to measure it.

3)    Are you getting market rates of return? 

Most people don’t even know what market returns are.   Work with an independent coach to analyze your current holdings to see if they have consistently held up to the returns of the asset categories you are in during the periods you have held them.  The odds are against you, and you have probably lost to the market.  It is easy to find managers who had top performance in the past;  it is all but impossible to pick them in advance with any consistency.

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