3 Ways to Put Financial Performance into Perspective

Is your Financial performance on track?

As we enter 2021, many of us may be more than ready to move on. At the same time, the new year

provides an opportunity to reflect on the progress you may have made toward achieving your goals,

which may include reviewing your investment performance.


But how should you be evaluating your performance, and how can you know if your return

expectations are appropriate? Ultimately, your investment portfolio should be designed to help you

reach specific financial objectives, so you should measure its performance against the return you need

to reach those goals. We recommend three R’s to help you put your financial performance into perspective:


  1. Your return expectations should be

When you’re unsure of what you’re aiming for, it can be difficult to know if you’re on target. Once you’ve worked with your financial advisor to set your goals, he or she can help you determine the return you’ll need to achieve them. This is the return you should keep in your sights rather than the market’s return.


  1. Your return expectations should be
  • The market environment – Our long-term return expectations are 5.5% to 7.5% for U.S. stocks and 3% to 4.25% for fixed-income investments. As economic and market conditions change, our return expectations will as well, so it’s important to review this outlook periodically.


  • Your asset allocation – The asset allocation of your portfolio – the mix of stocks and bonds, including the mix of domestic and international investments, etc. – should align with your long-term financial goals and comfort with risk. For example, the greater the return you need to meet your goals, the more you should consider investing in stocks. But risk and return go hand in hand – the more you invest in stocks, the higher the risk of market declines you’ll face.


  • Investment holding period – While the above chart shows average annual returns, the market rarely has an “average” year. In general, the longer you own your investments, the higher the likelihood your returns will be positive and the closer your return could be to the long-term average.


  1. Your return objectives should be

Regular performance reviews with your financial advisor over time can help keep you on track. If you haven’t done so in the past year, the new year is a good reminder to check your portfolio and financial position, including your personal rate of return. But as we noted above, rarely does the market have an average year. You’ll want to evaluate not just the past year but your performance over time.

You’ll also want to look at your goals and objectives in case these have changed. If you decide to make some changes, remember to keep a longterm outlook rather than reacting to short-term fluctuations.

How are you doing?

Your financial advisor can help you review your current performance in the context of your long-term goals and our expectations for future performance. More important, you’ll review how your performance affects progress toward your long-term goals and if any changes need to be made. Ultimately, the best way to measure performance is by comparing it to the progress you have made toward reaching your financial goals.