Course 301: How to Monitor Your Portfolio, Part 1
Monitoring Performance
In this course
1 Introduction
2 Your Monitoring Procedures
3 Monitoring the Characteristics of Your Portfolio
4 Monitoring the Fundamentals of Your Mutual Funds
5 Monitoring Performance

Once you’ve reviewed your portfolio’s characteristics and those of individual fund holdings, examine its overall results during whatever time period you’ve chosen. (The longer the better! Short-term performance trends are often little more than noise.) How do these returns compare with the benchmark you've established for this portfolio and the long-term returns you're expecting?

Of course, your portfolio isn't going to return exactly what you need each and every time you examine it; the idea is for the portfolio to average out to that expected return figure over time. So if your portfolio has not met your average required return over whatever time period you've chosen, don't panic. Conversely, if your portfolio has returned more than you expected, don't go on a spending spree.

However, if your portfolio has suffered losses, make sure those losses are within the acceptable range you set forth in your Investment Policy Statement. If not, your portfolio may have more risk in it than you think, and you may need to re-evaluate your holdings.

Let's take an example. Say you own shares of Vanguard Total Stock Market (VTSMX), Vanguard Total Bond Market (VBMFX), T. Rowe Price High-Yield Bond (PRHYX), and T. Rowe Price Emerging Markets Bond (PREMX).

To understand why your portfolio behaved as it did, turn to your individual holdings. For example, In Morningstar.com's Portfolio Manager, you can see your gain and loss in a stock or fund since you initially purchased it.

Maybe one or two of your investments fell short of expectations while others returned more than you expected--understand why. Perhaps stocks were in favor during the period, so your equity holdings did better than your bonds. Put the performance of your investments in context.

The best way to do that is to compare your returns with those of an appropriate benchmark--the benchmark you laid out for each investment in your Investment Policy Statement. By clicking on the Views tab, you can create a custom view that shows the data points of your choice—in this case, each fund’s three- and five-year returns as well as how those returns stack up to its category peers.

For more about benchmarks, take a look at Funds 202: How to Benchmark Fund Returns.

Next: The Quiz >>


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