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Track your Performance

April 16, 2024
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"There ain't no such thing as a free lunch" (TANSTAAFL)

In life, few things are really free and this is probably true for investing as well. However, an investor can do pretty well without a lot effort with good performance by choosing to index. Investors that choose to index are highly likely to beat the active professional money manager. 

The question then becomes why would you want to pursue active investing when most of the odds are stacked against you? Even if you put in a lot of effort, you are most likely to underperform. To curb this, my suggestion would be to track your performance accurately and assess it after a few years against an appropriate benchmark. If, for example, after 7 years you are performing significantly worse than the benchmark then you can probably switch from an active investment strategy to a passive index strategy. This will save you a lot of time as well as money if you determine that you are underperforming.

In the thread below, I outline different ways to track performance i.e., profit/gain, compound annual growth rate and money-weighted return. I argue that money-weighted return is the best way to track performance because it takes into account your contributions over time.

This article also helps explaining money-weighted returns:

https://www.sharesight.com/blog/time-weighted-vs-money-weighted-rates-of-return/


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