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  • Exclusive Insights: The four keys to evaluating portfolio performance.

    Exclusive Insights: The four keys to evaluating portfolio performance.

    Investing is more than just choosing assets; it’s about monitoring performance to ensure that your investments align with your financial goals. Whether you’re a novice or a seasoned investor, acquiring the keys to assessing portfolio performance is crucial. This guide provides the tools to ask the right questions about portfolio performance, whether you manage your portfolio yourself or delegate the management to someone else. In this article, you will understand: Performance calculation itself and the perverse effect of different Time-weighted methodologies. The same portfolio and same flows may provide different return numbers, leading to wrong analysis and bad decisions or even doubting your manager’s integrity. Relative Performance, or Alpha, and what it explains and doesn’t explain. In any walk of life, the ego gets in the way of common sense, and Alpha provides a nice test bed for ego management. How do you make sure it is presented sensibly? As soon as you invest or delegate the management of your wealth, you accept that, at some point, you will lose money. Losing in the short run to gain long-term is risk-taking. How is that measured? Is your manager using your “risk budget” efficiently? Risk aims to measure your probability of losing money and is a crucial feature of your manager’s efficacy. Does your asset manager correctly express your gains expectations with your acceptance of losses – in short, your risk appetite? Once performance is calculated correctly and risk adequately measured, we can combine performance and risk with the well-known Sharpe Ratio. As old as modern finance, this number can give vital insights into separating two managers with similar performances or a manager with a proper, well-defined, relevant benchmark. How can you exploit its insights when discussing performance with your manager?

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