Now that 2014 is officially over, it is a good time to review your portfolio's performance. Whether you are a stock picker, day trader, mutual fund investor, commodities or currency guru; understanding how much you made or lost in the markets during the year is extremely important. But, just knowing whether or not you made money isn't enough; you need to know whether or not you outperformed the market itself or else all the time and money you spent researching, buy and selling, or paying an advisor was simply a waste.
In order to determine whether your complicating things and throwing money away you should be comparing your total portfolio returns to that of a specific index such as the S&P 500 or more specifically the SPDR S&P 500 ETF (SPY). By using the SPDR S&P 500 ETF as a benchmark, you can determine whether you beat or were beaten by the market. This information will then allow you to make a better financial decision about how and with whom you invest your money moving forward.
Let's get started
First let's start with how your portfolio performed? To get total portfolio return you need to calculate if your investments increased or decreased. Take all the individual stocks, bonds, mutual funds ETF's you own, add up the total value of the investments at the start of 2014 and subtract that by what they were worth at the end of the year. (That figure should include all dividends, capital gains from investments sold.) For example, if you started with $90,000 in investable assets on January 1, 2014 and on December 31, 2014 those assets were worth $104,500. Therefore the return would have been $14,500 for the year or a 16.1%.
Now compare that number with the SPDR S&P 500 ETF which rose 11.4% in 2014 pre-dividend or 13.27% with dividends calculated into the total return. The example above certainly would have beaten the SPDR S&P 500 ETF, meaning you didn’t waste time or money during 2014. Continue reading "Sometimes Keeping it Simple is the Best Way To Invest" →
