Sometimes the conversation starts like this: “Hey, neighbour! I just got my investment report and since moving to my broker ten years ago, my U.S. equity performance is 14% annualized! Wow!”
You recall that you changed managers that year too, but in your November report, your since inception U.S. equity return was only 10%. Even though this return was higher than your own expectations, you might feel shortchanged and think, “Why isn’t my performance as good? I invested that same year!”
Cocktail party conversations like this are rife with the dangers of invalid comparisons. Without full and transparent information related to the returns themselves, one can easily come to erroneous conclusions. At worst, these invalid conclusions can contribute to feelings of angst, disappointment and impulsivity to make a change, when there shouldn’t necessarily be any.
To help navigate the nuanced areas of performance measurement, Nexus has penned a piece entitled Performance Measurement 101. This guide will help simplify the somewhat complex world of performance comparisons, in particular, the intricacies around rates of return and what to do with them once you have them.
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