Measuring Portfolio Performance vs. Benchmark Performance

“How am I doing?” is a question I often ask myself. I may check the mirror to make sure I’ve applied my sunscreen evenly before heading outside. I may evaluate how I feel on a long run to determine whether I need more water. In regard to my finances, I might check my spending or see how my investments are faring.

In the realm of portfolio management, there are many ways to measure a investment portfolio. Right now, I’ll look at how to gauge portfolio performance compared to its benchmarks. Here are some steps to consider:

Online Tools to Build Investment Portfolios

Putting together a diversified investment portfolio can be uncomplicated and performed in the solitude of my home. I can use online tools provided by brokerage firms to quickly build investment portfolios.

These tools don’t substitute for customized investment recommendations. The portfolios suggested may or may not be suitable for specific objectives. And, though they’re typically diversified portfolios, diversification doesn’t protect against loss all the time or guarantee a profit. But they’re free to use and they can offer insights into how a portfolio is constructed.

Investing Scenarios That Make Me Pause or Run

Avoiding a bad investment deal can be as important as finding the right mix of investments. There are two main types of investing scenarios to avoid: 1) the investment scam, an outright illegal operation and 2) the raw deal, an arrangement that’s legal but clearly not in the best interest of the investor.

The specifics of fraudulent offers and sketchy investments may change as times change. Today’s environment may be ripe for tricks involving green energy or pre-IPOs whereas shady offshore investments may have been more prevalent in the past.

Sales pitches associated with out-and-out scams and lousy deals tend to be consistent. They may promise high returns with no risk or grant access to investments typically reserved for the ultra-wealthy. What’s tricky is that they often contain an element of (half) truth.

How to Set and Reach Financial Goals with Betterment

For many years, I have been resistant to the idea of setting financial goals; instead, I have opted to accumulate wealth so that I have the means to make purchases when needed. This wealth-building approach can be effective, and is certainly better than not saving, investing, and growing assets.

Still, there are at least a couple of shortcomings to general wealth building: 1) I’m not sure when my goal has been achieved; and 2) I’m reluctant to spend down the assets that I’ve worked so hard to accumulate, largely because I’m not clear about the purpose of my investments and the timing of withdrawals.

Goal setting can inspire me to save and invest, and make me feel happier and more secure about spending.

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