How to Analyze Investment Performance and Make Best Decisions

How to analyze investment performance is an important insight to know to help you make the best decisions. By knowing the performance of the investment, you will know whether you should continue, change, or stop. Here are the steps you can apply to also check whether it is still in accordance with your financial goals.

4 Ways on How to Analyze Investment Performance

1. Measuring Returns

In investment, performance needs to be analyzed by calculating profit or yield as the most basic way. Know how to calculate the total return or what percentage of profit from the beginning of your investment until now. Then also calculate the annual return or average profit per year if you have been investing for a long time.

There are also other forms of returns that you need to analyze, such as Time-Weighted Return (TWRR). TWRR can isolate investment performance and exclude the impact of deposits or withdrawals. Meanwhile, Money-Weighted Return (MWRR) is by considering cash flow, showing how the timing of deposits and withdrawals affects the results.

2. Identifying Possible Risks

In analyzing performance, you also need to consider the risks, such as whether the price continues to rise and fall. Knowing the level of price fluctuation can show how much the value of the investment can vary. Also make sure whether you are comfortable with the fluctuations that occur, especially in a short time.

Understanding your investment performance can also be done through analyzing the sensitivity of the investment to market movements. Measurements like this are important because investments experience sharp increases and decreases which are usually high risk. By having data on investment risk, you can adjust it to your risk profile.

3. Evaluating Stability

Consistency checking is also important in analyzing the performance so that you are more confident to continue or not. For example, investment A offers 30% profit but turns out that in the following years it actually loses a lot. Meanwhile, investment B may only offer a 10% profit but is very stable without a drastic price drop.

Through this consistency check, of course you know which one you should choose for investment, right? Investment A looks tempting with the offer of greater profits, but don’t be tempted if you end up losing money. Through this investment performance, you can consider more wisely which investment is right for you.

4. Comparing with Investment Objectives

Best way on how to analyze investment performance is to compare it with investment objectives. This method can show whether the investment you are running is on the right track. By analyzing performance, you will know whether your investment is sufficient to reach your goals.

If the investment performance is good, you choose the right instrument and are able to catch up with inflation. From this comparison, you will be helped in seeing how far the progress is towards your goals. You can also assess whether the investment has been profitable enough or is still lacking.

How to analyze investment performance can make you more rational in the investment process through data and analysis. You will also avoid market follower actions and selling too quickly just because of panic. Knowing the performance also relieves you because you know whether the investment has been profitable enough so far.