Rating your portfolio’s performance

One of the easiest ways to monitor overall performance of your investments is to record and compare the total market value of your initial investments, to the total market value at the end of each month thereafter.  Note it on a sheet of paper, or creating a spreadsheet on your computer.  Either way this provides a rough framework in which to monitor your investments.

An overall understanding of why a monthly amount changed is essential.  You should note what the relevant benchmarks are closest to your portfolio.  If it holds primarily Canadian equities then the S&P/TSX Composite Index may be your comparison.  If you also record the value of the relevant indices at each month end, then it is easy to calculate a percentage change to the Index, and compare this against your portfolio.

From a more detailed level you may want to record and compare the month end values for each account.  You should factor in transfers from a non-registered account to fund a TFSA or RRSP contribution.  Within each investment account you could to see what has moved up or down.  For specific holdings that have moved by more than 10 per cent in one month you should find out why.

One of the reasons you have a financial advisor is for them to provide you with reports that are not easy to generate yourself.  If you are working with a financial advisor you should periodically receive a performance report.  This report is not the same as your monthly or quarterly statements that are sent to you automatically.  A performance report essentially calculates your rate of return for a specified period, such as one year.  It should provide a summary of cash in-flows and out-flows.  Cash in-flows would be deposits and income generated from the investments.  Cash out-flows would be primarily withdrawals and fees.   Buys, sells, and market value changes of existing investments should be factored into the report as well.

One of the benefits of consolidation and working with one financial firm for a long time period is that it simplifies your ability to do performance reporting on your investments.

There can be many complicating components that make performance reporting more difficult including:  special holdings with no publicly available market value, values that came from old legacy computer systems, multiple transfers between financial firms, share certificates deposited where the owner does not know the original cost, transfers from an estate account in-kind, and frequent deposits and withdrawals from an account.  The above items may make reporting from inception (when you began investing) to the present more difficult.

Every performance report should be compared to relevant benchmarks.  As most Canadians have at least some Canadian stocks we have listed the returns for the TSX/S&P Composite Index for the last decade:





















A performance report is effectively a report card on your financial advisor.  As an example, in 2008 when the equity markets dropped 35 per cent, it could be viewed as a success if your equity investments declined only 12 per cent.

On the other hand, in 2009, if your equities only rebounded 15 per cent then you significantly underperformed in that year.  This is assuming the equity component of your portfolio is taking the same amount of risk as the index.

A component that may impact performance is whether or not you were actively involved in choosing your investments, or if you took 100 per cent of your financial advisor’s recommendations.  In some cases, investments are transferred in that a client likes and wishes to hold onto even though they are not part of the advisor’s current recommendations.

Unsolicited selling when you were advised not to sell, unsolicited buys not recommended by your advisor, and solicited buys and sells that you declined should all be factored in when looking at the final numbers.  The term unsolicited means that you phoned your advisor up with a trade to be executed.  All of these types of trades should be marked “unsolicited” on the trade confirmations you receive.

Another factor to consider when assessing performance is whether an advisor has taken over a portfolio that may be significantly different from their own model portfolio.

As an example, a client may transfer in Deferred Sales Charge (DSC) mutual funds with large redemption fees to an advisor who purchases individual securities.  In some cases we would recommend to hold the DSC funds to the maturity date (or to a specific date where the fees are lower) to eliminate or reduce the redemption charges.   When this occurs it may take some time to manage out of current holdings and into an advisor’s model portfolio.