Asset Allocation For Dummies®

Chapter 12. Measuring Your Results

In This Chapter

• Calculating your investment return

• Using benchmarks for investment-return comparisons

• Using your Lifetime Cash-flow Projection to track your progress

To be the best investor you can be, you need to be able to gauge how well you're doing with your asset allocation recipe. That's what we focus on in this chapter — how to figure out how well your portfolio is doing with a high level of accuracy.

We begin the chapter by explaining how to express your investment results in a useful way — one that allows you to make meaningful comparisons — by calculating your investment return. You can calculate several different types of returns, and we explain which ones to use in various circumstances.

We then look at how to find and construct appropriate points of comparison (called benchmarks) against which you can gauge your return. And we wrap up the chapter by putting your investment performance in its most pertinent context: your long-term financial plan.

Throughout this chapter, we explain how the measurements we recommend touch upon the five key elements of understanding your investment results: principal, term, risk, opportunity cost, and suitability. We also make important connections to relevant concepts we introduce in other chapters, such as risk and return (see Chapter 2), the range of investment strategies and their associated sample asset allocations (see Chapter 8), and your Lifetime Cash-flow Projection (see Chapter 7). So get your page-flippin' ...