Are Your Investments Sinking or Swimming?
How often do you make assumptions when you open your 401k statement about how well it is performing? I often find that clients will decide whether or not their account is performing well based upon whether their account is worth more or less at the end of a given quarter. This is not necessarily a good way to determine whether or not your account actually had “good” performance.
My 12-year old daughter is relatively new to the sport of competitive swimming. She started later than most other swimmers her age and has worked hard to try to close the gap. During her meets (her very long early meets) I have spent a lot of time analyzing data of her times. Most important to her is that she continues to drop time, improve her form, and have fun. But many times, she will ask me, “how are my times”. She wants to know how her times compare to other kids in her age group. Just knowing how fast she swam is meaningless if she does not know how fast all the other competitors were.
The same is true of investment performance. If your performance report says you had a net return of 6% for last quarter, some might say that it performed “well.” What if the rest of the fund’s peer group returned 11% that quarter? Then you might think 6% wasn’t actually that great. Or what if you see a return of -1%? Your first thought might be that my account is underperforming but if the peer group returned -2.3 % then your return actually faired better than its peers. Another question to ask is what percentage return has your account earned AFTER fees and expenses? Most people honestly have no idea, yet this is really the most important number when it comes to knowing how your account performed. Expenses matter, especially in the long run. It is important to know the whole picture in order to determine if your portfolio is actually working for you and not against you.
You should consider working with an advisor who screens your fund lineup every quarter to determine if your current holdings are appropriate. Screening should involve more than just short-term performance. A fund’s five-year and ten-year performance numbers are a better indicator of how it has performed rather than just looking at the last three months. Other factors that should be considered is how the fund compared with its closest index and peer group in expenses, risk taken, and style drift. Monitoring software that provides a fund fiduciary score can give a good overall snapshot of how a fund compares using all criteria, not simply performance. Our firm seeks to find investments with consistent long-term performance at extremely low costs. A great question to ask your adviser: “What screening criteria do you use in determining if my fund investments are still appropriate and the best to achieve my goals?” Just because a fund was appropriate three years ago and was the best choice then, doesn’t mean it is still the best option today. You must have an effective ongoing process to help you achieve your desired outcome.
Just like my daughter’s swim times must be viewed in light of all the other swimmers she competes against, you should also compare your investment accounts in a similar way. If you are not sure how well your current accounts are actually performing, we would be happy to sit down with you and give you a complimentary report detailing how your portfolio stacks up against its peer group. If someone asked if your portfolio was sinking or swimming, would you know how to answer? If you aren’t sure, it might be time to start asking questions
Ashley Rosser, President
Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.
Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.