When asked what a client's performance was last year, they usually don't know. They have an idea if it was a good year or a bad year from a dollar perspective, but are usually not aware of how to measure their actual performance.
Your Personal Return
You should be able to easily find this number by looking at your December 31st statement of the previous year. It will tell you what your personal rate of return was for the last year after fees. You can also break down your performance by each geography which will help in the calculation at the bottom of this page.
Is your return good or bad? I would hope to see a positive number here to justify why you are investing your money.... but it's not always the case. You can have a negative rate of return and it can be argued that it was a successful year. And it can be a positive return and be considered a problem year for your portfolio. Everyone needs a benchmark, or some "yardstick", to allow them to properly evaluate their performance.
Perception of Performance
A client may be ecstatic experiencing a 5% rate of return because they are comparing themselves to term deposits that only generated 3%. That same client may have been fully invested in the US market (Dow Jones Industrial Average index) which returned 11% and exposed them to a much higher level of risk. This should be considered a bad year given the client underperformed the index and took on more risk than they thought.
Selecting The Right Benchmark
Geographic is the most common approach and it will allow you to compare your returns to the market that you are trying to outperform. For example, Canadian stock investments will be compared to the TSX Composite Index to show their added value (or detracted value).
Compare your performance with the proper benchmark to understand what worked last year for you.
Fixed Income Return: ______% x weight Fixed Income Benchmark ______% x weight
Canadian Stock Return: ______% x weight Canadian Stock Benchmark ______% x weight
US Stock Return ______% x weight US Stock Benchmark ______% x weight
International Stock Return ______% x weight International Stock Benchmark ______% x weight
Portfolio Return _____% Portfolio Benchmark Return ______%
Portfolio Return - Portfolio Benchmark Return = % Value add (detract)
If you have any questions on how to select the benchmark or what numbers to use, contact me at email@example.com or 416-888-2151.