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How to keep track of your investments

2021.11.29 Vítor Ribeiro, CFA

The phrase “I don't have time to monitor the investments” contains in itself one of those sophistry of free will: does it really need to have time to monitor? What does it mean to track the portfolio?

In fact, looking at a monitor and seeing a portfolio's daily asset movements is often confused with what we call portfolio tracking or feedback. It is the third phase of our investment approach and philosophy, which includes planning and execution. In investment management, monitoring the portfolio means evaluating the performance of assets and the portfolio itself, monitoring defined objectives, rebalancing the portfolio and, if necessary, reviewing or changing the investment policy.

On the one hand, with the increasing digitization of the investment process, it seems to be easier to keep track of the portfolio. There are platforms for all tastes, which allow us to quickly and securely access various markets and instruments and then monitor the evolution of these investments.

On the other hand, this facility allows for more erratic decisions and even greater dispersion of the portfolio among several brokers or investment companies, making its integrated management difficult.

The following figure highlights some of the main investment platforms and their framing in the different segments of the asset management industry.



Obviously more information and more options is better, but that doesn't mean being held hostage to that information, which usually comes in the form of noise or behavioral biases. Daniel Kahneman, Oliver Sibony and Cass R. Sunstein, in their most recent book, Noise, are keen to consider the existence of 2 types of errors: prejudice (or bias) and noise.

Noise is particularly important because we are constantly inundated with information that disrupts our decision-making and focus on what is important.

Therefore, monitoring the portfolio is not the act of analyzing whether the portfolio is falling or rising, but rather analyzing whether or not the portfolio is in line with our objective, evaluating its performance in the context of the defined financial plan.

These platforms, which symbolize flexibility and ease of investing today, are very positive for the development of financial markets and include tools of enormous value to investors. First, the safe value of liquidity. The daily liquidity of investments should not be a signal to trade, but rather an insurance that differentiates them from more illiquid investments such as direct real estate investment.

With the proliferation of investment platforms and the emergence of new financial products, it is increasingly important to have an integrated view of the portfolio where all information can be aggregated and analyzed. An aggregation that allows the analysis of a portfolio by objectives, by asset class and even by broker or bank, and which may include non-financial or less liquid assets such as real estate, art and other alternative investments.

If the information remains dispersed, it will be more difficult to make correct decisions, we will spend more time on analysis and we will increase the risk of deciding on impulse, in the face of sudden movements in the market and based on noise and behavioral biases.


Performance analysis

A set of performance measures must also be included in the portfolio monitoring. The most common are:

  • Return, which can be calculated in various periodicities. From the beginning of the year, to one year or annualized. One of the best known acronyms is the CAGR (Compound Annual Growth Rate), which is a rate of return that allows you to understand the effective rate of an investment from the beginning;
  • Standard Deviation, which represents the variation of returns from the average, the volatility of assets or the portfolio as a whole;
  • Sharpe Ratio, which is a measure of risk-adjusted profitability developed by Willianm Sharpe. It is widely used, for example, to be able to compare the performance of a portfolio or asset against the respective benchmark or similar portfolios. A higher Sharpe ratio is good for the portfolio as it means that we are rewarding the risk incurred better;
  • Maximum drop, which can be in percentage or in value and allows to understand the portfolio drop since the previous maximum or in a certain period of time. It is a measure that demonstrates realism and helps investors to make decisions;
  • Value-at-risk, a risk management measure that makes it possible to quantify the potential loss value of the portfolio in a given period of time, based on a given probability.


To know whether or not the portfolio is performing well, we must consider comparing it to similar portfolios. Benchmarks are normally used, which can take the form of indices or even assets comparable to those in the portfolio such as ETFs or investment funds. The use of indices is the industry norm, such as the MSCI World, the S&P500, the Stoxx600 or the Barclays Bloomberg Global Aggregate Bond Index. For example, if we have a portfolio composed of investment funds and ETF, we can use an index portfolio as a benchmark to assess the performance of the portfolio and the assets that comprise it.

But it is increasingly common to compare with a real portfolio that can be invested, so that management and transaction costs are included in the comparison.

In addition to these benchmarks, and depending on the type of portfolio management that the investor has - advising (consulting for investment), discretionary management (mandate) or do-it-yourself - we can also use the portfolio's return and risk objectives over the long term. term as references to compare. This possibility allows investors to perceive deviations from their objective and distance from the daily behavior of the market.

In summary, portfolio monitoring is not a decision-making process based on the daily movements of assets, but the analysis and monitoring of the portfolio based on the defined plan, the way it is evolving and the expectations we assume. Only then will we be able to make the best decisions in terms of rebalancing the portfolio or even switching managers or financial instruments.

Deciding by memory and based on mental shortcuts can lead the investor to trade more often, generate more costs and lower the potential performance of the investment. Often, having time to monitor means having time to do something when, in fact, what the portfolio asks is that nothing be done. So taking the time to follow up can mean taking the time to verify that we don't have to do anything.

Try to see the portfolio in an integrated way. Decide based on defined metrics. Do not transact on impulse. Changing the investment plan because the market has fluctuated is to admit that we are dominated by bias and noise and not by our goals and targets

Vítor Ribeiro, CFA
Vítor Ribeiro, CFA

Vítor is a CFA® charterholder, entrepreneur, music lover and with a dream of building a true investment and financial planning ecosystem at the service of families and organizations.

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+351 939873441 (Vítor Mário Ribeiro, CFA)

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