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How to tell if your investment is doing well

POSTED ON MARCH 10, 2023    

You have to understand that when you invest, the goal is to make your money make more money. How little, or how big you earn is a totally different story. But generally speaking, having investments which perform pretty well is something that all investors try to have in their portfolios.

 

As a general rule, the higher an investment grows, the better it’s doing. But when can you say that it’s actually doing well?

 

The term “good performance” is quite subjective. After all, what one person would consider good might be seen as low by a different investor that is willing to take on higher risk.

 

That’s why there is no absolute metric that an investment must reach before it can be said to be doing well. However, there are few ways for you to see if your investment is generally in good shape.

 

Compare against a benchmark

Looking at your investment’s growth relative to that of a benchmark allows you to pit its performance against an industry-accepted barometer. This also allows you to compare using an ‘apples to apples’ standard.

 

You can consider that benchmark as the baseline, so matching it would be the expected level of performance. Underperformance would be growth that is slower than that the benchmark, and overperformance would be the opposite.

 

If you want to try this, it’s important to find the right benchmark. You wouldn’t want to set your bar too low and risk accepting growth that is actually below standards, nor would you want to get the wrong picture by comparing it to a totally different asset class.

 

Instead, look for an investment with similar assets and whose growth could be considered standard for the current situation. This might get a little tricky, so getting the opinion of an expert would be a good idea.

 

Short term investments are generally low-risk, low-return instruments normally benchmarked against Treasury Bills.

 

Medium-term investments are generally moderate-risk, moderate-return instruments normally benchmarked against bonds or indices, or a mix of both.

 

Long-term investments are generally high-risk, high-return instruments normally benchmarked against similar-tenored government securities or indices, or a mix of both.

 

You’ll have a better feel of benchmarks once you start scrutinizing the KIIDS or Key Information and Investment Disclosure Statement of UITFs or mutual funds.

 

Look at absolute returns

Another way to see if your investment is doing well is to check its absolute returns, or the amount of money that it has earned for you.

 

There isn’t any comparison to be done here; instead, you just have to judge the growth based on how it benefited you, relative to the amount of time you have been investing.

 

This would be easier than looking for a benchmark, although you’ll need to keep in mind that you might not know if you’re making the most efficient use of your money because you are just looking at the mere movement in peso terms.

 

Still, if you find that you’re happy with your returns, this relatively low-effort method might be the one which works best for you.

 

Check against your goal

While similar to looking at the absolute returns, checking the performance against your goal gives you a way to quantify how your investment is doing. You’ll be able to see if it’s growing the way you anticipated, which will also help you understand if you should consider moving your money to a different investment instead.

 

It becomes easier to do if you set checkpoints for the growth. For example, you could have figures for its value at the end of each year, and then see if the value actually reached those amounts by those times.

 

Of the 3 methods, this is perhaps the most practical. After all, you’re investing for a purpose, and seeing how likely you are to achieve it is a great way to judge how your investment is doing.

 

Again, you’ll have to be OK with the thought of not knowing if your money could have grown faster elsewhere. But, knowing if it will let you reach your goal might be good enough for you.

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