INVESTMENT PERFORMANCE & RISK

Investment performance is simply the return on an investment portfolio and can contain single or multiple assets. There are different types of return, one factor is a total return, the other a price return. A total return is when an investor has factored in any interest and dividends, whereas the price return only factors in the investments capital appreciation. Investors also must factor in the difference between a net and gross return because for a pure net return figure they must factor in expenses, taxes and any portfolio fee’s. Some of these factors may fall outside of the institutions or fund managers control so investors must be shrewd when considering investments.

Performance measurement starts with a term called ‘benchmark’ and this is used to measure the performance of a portfolio. Benchmarks can be based on indexes such as the FTSE 100, S&P 500 etc… or portfolios that contain the same types of comparable securities. These are used so that investors and institutions can tell whether their performance is better than if you had simply invested in one of the indexes alone. i.e. if the S&P 500 had grown 12% over one year but your portfolio had grown by only 8% then you would have been better just investing your money in the S&P 500 index and holding it for a year!