Do you know how your investments are performing? Are you confident that your portfolio is on track to meet your financial goals? If not, it’s time to start tracking your portfolio performance.
Tracking portfolio performance can help you make informed decisions about your investments, identify areas for improvement, and stay on track to meet your financial goals. In this article, we’ll discuss the importance of tracking portfolio performance and provide step-by-step instructions on how to do it.
Whether you’re a seasoned investor or just starting, tracking your portfolio performance is essential to achieving long-term financial success. So, let’s get started!
What's in the Article:
Why Tracking Portfolio Performance is Important
Investing isn’t a ‘set it and forget it’ kind of activity. Maintaining an effective investment strategy in the complex world of financial markets requires vigilance, comprehension, and ongoing adaptation to evolving circumstances. Tracking your portfolio’s performance is crucial to staying on top of your financial goals. It provides insights into the success of your investment strategy, highlights areas for improvement, and can reveal potential risks or opportunities you may not have considered.
Key Metrics for Tracking Portfolio Performance
You’ll need to understand some key financial metrics to track your portfolio’s performance effectively. These include:
- Rate of Return (RoR): This metric shows the percentage of money gained or lost on an investment relative to the initial investment.
- Compound Annual Growth Rate (CAGR): This provides the mean annual growth rate of an investment over a specified period of time longer than one year.
- Alpha: This measures the performance of a portfolio on a risk-adjusted basis. A positive alpha indicates the portfolio has outperformed its benchmark index.
- Beta: This measures a portfolio’s volatility, or systemic risk, compared to the whole market.
- Sharpe Ratio: This measures risk-adjusted performance. It is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
- Volatility: This refers to the amount of uncertainty or risk related to the size of changes in an investment’s value.
These metrics can help you assess your portfolio’s performance from multiple angles, helping to provide a more complete picture of your investment success.
The Role of Benchmark Comparison
Benchmarking your portfolio’s performance against an appropriate index is crucial. For instance, using the S&P 500 as a benchmark is useful if your portfolio mainly contains US equities. Benchmarks allow you to understand how your portfolio performs relative to the broader market or sector-specific indices. This helps you determine whether you’re outperforming the market, meeting expectations, or falling behind and need to adjust your strategy.
What is the Best Way to Track Your Portfolio?
Investors have many options when it comes to tracking their portfolios. Depending on your portfolio’s size, complexity, and diversity, some methods may be more suitable than others. Let’s take a closer look at several standard ways:
1. Manual Tracking with Spreadsheets
To create custom portfolio trackers, investors can use spreadsheet programs like Microsoft Excel or Google Sheets. Here, each investment can be logged along with relevant information such as purchase date, price, quantity, current price, etc. In addition, formulas can be written to calculate important metrics like returns, percentage change, and overall portfolio performance.
Manual tracking has its advantages: it’s flexible, customizable, and offers privacy since your data remains on your personal device. However, it can be time-consuming and prone to errors, especially as your portfolio grows and becomes more diversified. In addition, you’ll have to manually update prices and corporate actions, which can become quite complex and tedious.
2. Brokerage Account Platforms
Most brokerage accounts offer built-in tools for tracking your portfolio’s performance. These platforms usually provide real-time updates on stock prices and other investment values. In addition, many offer analytical tools, allowing you to monitor key metrics like total return, asset allocation, and more.
These platforms are convenient since they directly link to your trading account, providing accurate, up-to-date information. However, they may lack more advanced tracking and analysis features. Furthermore, you might struggle to get a complete view of your entire portfolio if you have investments across multiple brokerages.
3. Financial News Websites and Apps
Financial websites like Yahoo Finance, Google Finance or Bloomberg offer portfolio tracking features. Users can create a portfolio by entering their holdings, after which the site or app tracks performance based on real-time data.
These tools are typically easy to use and offer quick views of portfolio performance. However, they might lack the in-depth analysis needed for more sophisticated portfolios. They also may not adequately track dividends, fees, or tax implications.
4. Portfolio Tracking Software and Apps
A range of specialized portfolio tracking software and apps, like Personal Capital, Morningstar, and Sharesight, offer sophisticated features for investors. These platforms allow you to integrate multiple brokerage accounts, track various assets, and provide comprehensive analytical tools.
They can automatically update price changes, account for corporate actions, calculate various performance metrics, and even generate tax reports. Some tools also offer portfolio optimization suggestions, like warnings about excessive risk or lack of diversification. They can also help you with how to track dividends to check disbursement or find opportunities.
However, these tools may come with a cost through direct subscription fees or associated services. Privacy and data security are also considerations, as you usually have to link your brokerage accounts or manually enter your holdings.
In conclusion, the best method to track your portfolio depends largely on your specific needs, the complexity of your portfolio, and the amount of time you’re willing to dedicate to portfolio management. However, portfolio tracking software or apps provide the most comprehensive, convenient, and time-saving solution for many investors, making them an excellent option to consider as your portfolio grows and diversifies.
What are the best Portfolio Tracking Tools and Software?
There are many high-quality portfolio tracking tools and software available today. You can read our article about the Best Portfolio Trackers in Canada, but here are a few examples:
- Sharesight: Known for its advanced performance reporting and tax reporting capabilities. It also allows integration with brokers and other financial platforms.
- Personal Capital: Provides a holistic view of your financial life. It tracks your net worth, cash flow, and investment performance.
- Morningstar Portfolio Manager: Allows you to track and analyze your investments with access to Morningstar’s trusted data and expert insights.
- Google Finance: A simple and free tool that enables you to monitor your portfolio’s performance, although its features are pretty basic compared to the others.
Sharesight is a leading portfolio tracking software, particularly appreciated for its comprehensive performance and tax reporting capabilities. It allows you to track your investments across different asset classes and countries and can handle a range of corporate actions like dividends, share splits, and mergers. Plus, it offers a function to import historical trades, a significant time saver. Finally, its ability to integrate with various brokers and financial platforms makes it a versatile choice for many investors.
FAQ about portfolio tracking:
What is the ideal Portfolio Composition?
The ‘ideal’ portfolio composition varies from investor to investor, depending largely on their financial goals, risk tolerance, investment horizon, and other personal factors. A portfolio can include a variety of assets, such as stocks, bonds, mutual funds, ETFs, real estate, and others. A diversified portfolio can help reduce risk and smooth out returns.
What is Portfolio Rebalancing?
Portfolio rebalancing is the process of adjusting the proportions of different assets in your portfolio to maintain your desired risk-to-reward ratio. It’s a way to ensure your portfolio stays aligned with your investment strategy and risk tolerance.
How to Track Long-Term vs Short-Term Performance
Long-term tracking generally focuses on trends, looking at yearly returns or CAGR, while short-term tracking often involves examining quarterly or monthly returns. Both are important but serve different purposes in your overall investment strategy.
How Do I Track Fees and Taxes?
Fees and taxes can significantly impact your net returns. Many portfolio tracking tools provide features that allow you to monitor these costs, helping you to identify and minimize them where possible.
How Often Should I Do a Portfolio Performance Review?
The frequency of portfolio reviews depends on your personal circumstances, but a general rule is at least annually. However, more frequent examinations may be necessary if your portfolio or the market changes significantly.
How Will You Track Your Stock Portfolio?
Tracking your portfolio is a critical part of investment management. It helps you to stay informed, make intelligent decisions, and stay on track to achieve your financial goals. You can make this task efficient and effective with the right approach and tools. Remember, the journey to financial success is not always straightforward, and a clear understanding of your portfolio performance can provide a valuable guide.
