A series of question and answers on banking from client First Bank & Trust Company.
How do I measure the performance of my investment portfolio?
Preparing for tax time always prompts stories about how the Dow Jones or S&P 500 indices performed the preceding year. These are widely recognized benchmarks for how “the market” is doing, but are they appropriate for most investors?
If you’re invested in mutual funds that don’t match the asset allocation, market capitalization, or geographic concentration of these indices, the comparison may not be helpful. A few other performance related issues to consider are:
- Did you add or withdraw funds from your portfolio during the year?
- Is an asset concentration (e.g., low basis stock that is 10% or more of the portfolio) skewing your results?
- Are bonds in the portfolio?
A professional investment advisor can help you make an apples-to-apples comparison and identify some of the biggest factors that impact your performance.
Every year, ask yourself and your investment advisor whether you have the appropriate mix of bonds, stocks and possibly “alternatives” to match your goals and risk tolerance.
Once your asset allocation is set, returns of the portfolio (vs. the benchmark or “the market”) should reflect the risk in your portfolio and be comparable to the risk and return of the benchmark(s). Asset and sector concentrations relative to the positions of the benchmarks, low quality securities in your mutual funds, and funds that have succumbed to “style drift” are issues that should be covered as well when discussing performance with your investment advisor.
Have a question about banking for First Bank & Trust Company? Please contact George F. Taylor, Senior Vice President and General Counsel or Charles (C. J.) Carter, CFA, Assistant Vice President/Portfolio Manager at First Bank and Trust Company.
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First Bank & Trust Company, one of the top community banks in the United States, is a diversified financial services firm with office locations in southwest Virginia – serving Blacksburg, Christiansburg and surrounding areas – northeast Tennessee, and the New River Valley and Shenandoah Valley of Virginia. Financial objectives are addressed by offering free checking products for personal and business accounts, and assessing lending solutions managed by mortgage, agricultural and commercial lending divisions. Comprehensive financial solutions are available through trust and brokerage service representatives. For businesses, First Bank & Trust specializes in business services, including online banking and online billpay, and business loans.