When it comes to monitoring your investments, we rely on benchmarks as a guiding light. Imagine your portfolio as a ship sailing through a vast ocean of market activity. Benchmarks serve as our navigational charts, allowing us to measure your progress and ensure we’re on course.
We begin by looking at your portfolio's performance over time, comparing its returns to those of a selected benchmark that mirrors the market segment your investments belong to. This isn’t just about whether the numbers are higher or lower; we also delve into the risk you’re taking on. For instance, while your portfolio might be achieving strong returns, we check metrics like volatility and beta to see if those gains come with an acceptable level of risk. Tools like the Sharpe ratio help us understand whether the rewards are truly worth the risks involved.
Additionally, we pay close attention to something called maximum drawdown—the largest drop from a portfolio’s peak value over a specified period. By comparing your portfolio’s maximum drawdown to that of a relevant benchmark, we gauge how well your investments are weathering market downturns and identify potential vulnerabilities that may need addressing.
We also keep an eye on what’s known as tracking error—the difference between your portfolio’s returns and those of the benchmark. Think of tracking error as a measure of how much your ship might be drifting off its intended route. A significant drift might suggest that your investments are veering away from our planned strategy, which is a signal for us to take a closer look.
All of these insights come together to inform our decisions. If we notice that your portfolio is consistently underperforming or taking on more risk than intended—or if the maximum drawdown signals that your portfolio might be too volatile—we may decide to rebalance your holdings or adjust our approach. This proactive stance ensures that your investments remain aligned with your long-term goals.
In essence, using benchmarks isn’t about chasing numbers—it’s about understanding the story behind those numbers and making sure your investment journey is steady and well-directed.
How You Can Monitor Results
In your quarterly performance reports (QPR) we include relevant blended benchmarks to compare your results. For example, if your target portfolio allocation is 75% equities and 25% bonds we will include a benchmark that is 75% world equities and 25% world bonds. Once your account history exceeds three years we will also publish statistics like beta and standard deviation that you can use to monitor volatility/risk.
eWealthmanager also allows you to monitor performance and compare your results with relevant benchmarks. From either the portfolio or account view select 'performance' to monitor results using blended benchmarks. Again, once your account history exceeds three years we will also publish statistics like beta and standard deviation that you can use to monitor volatility/risk.
If you ever want to drill-down on results to montor things more closely just reach out and we'll produce special reports.