How Should YOU Measure Your Investment Performance?
Investors shouldn't be obsessed with their portfolio's performance, but an annual evaluation is key to keeping you on track.


I’ve spent over 25 years in the financial advisory profession but recently had a startling realization about investment performance. During a friendly debate with a friend who manages a small-cap mutual fund, I realized even seasoned investment professionals can have misperceptions about investment performance. My friend had a fixation on top quartile performance, a key measure of his professional ranking, but one with little application in the real world — where clients typically own mutual funds representing various asset classes.
Our debate got me to thinking: How should the average investor measure investment performance? I recommend investors focus on two components of performance:
How is my performance number calculated?
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How is my account doing relative to a fair benchmark?
Your Performance Calculation
The performance calculation methodology involves two key variables: 1) the mathematical formula used to produce a return figure and 2) the portfolio(s) that are being measured. Most professional money managers use a Global Investment Performance Standards (GIPS) compliant methodology to calculate investment performance. Brokers, Registered Investment Advisers and custodians often provide performance information to clients in their account statements. It is important to ask your provider if their performance report uses an approved GIPS methodology. Time-weighted returns are the most commonly used measure.
Interestingly, GIPS does not require investment performance to be reported net of fees. Consumers would be wise to ask their adviser for performance reports net of fees. After all, it’s not what you earn, it’s what you keep that is important.
Equally important is understanding whether the performance number is specific to your account, or merely a listing of the performance of each mutual fund. According to the GIPS guidance statement on fees, “The GIPS standards are based on the concept of presenting composite performance to prospective clients rather than presenting individual portfolio returns to existing clients (emphasis added).” Very simply, it is permissible for a broker or custodian to show a performance number on your statement for XYZ mutual fund that may or may not be your actual investment performance.
I’ve seen brokerage statements list a client’s various mutual fund’s performance, but not include the client’s overall account performance. Investors should ask their adviser for their specific account’s performance net of all fees. Most advisers have software that can calculate this.
Which Benchmark to Use
What about benchmarks? How can investors gauge their performance relative to other alternatives? This simple question raises many issues.
Should you benchmark your portfolio versus an index like the S&P 500? What’s a fair comparison for a portfolio invested 65% equity / 35% fixed? What about an all-equity portfolio comprised of large-cap, small-cap, international, REITs and emerging markets?
Morningstar provides a quarterly list of average returns by category, which is a reasonable basic benchmark to measure a specific fund. For accounts using a diversified, multiple asset class approach, Morningstar provides returns for different asset allocation funds, sorted by equity ranges. This is a helpful guide should your portfolio be comprised of large-cap, small-cap, international and emerging market funds.
The Bottom Line
While an obsession with performance can be counterproductive (often leading to chasing past winners and inferior performance), an annual review of portfolio performance is something all investors should undertake. Make sure you understand what is being measured and how it is being measured so you can track progress toward your goals.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Mike Palmer has over 25 years of experience helping successful people make smart decisions about money. He is a graduate of the University of North Carolina at Chapel Hill and is a CERTIFIED FINANCIAL PLANNER™ professional. Mr. Palmer is a member of several professional organizations, including the National Association of Personal Financial Advisors (NAPFA) and past member of the TIAA-CREF Board of Advisors.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold Shines
The third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial Adviser
If you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.