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How to understand and gain perspective on your quarterly return statements

By ATB Investment Management Inc. 4 June 2020 7 min read

Whether you receive your next investment statement electronically or in your mailbox, there is sure to be a lot of information and data to absorb. Part of the reason for this is that there are regulatory requirements behind client statements and these rules exist to ensure financial institutions do not leave out any pertinent information. Your quarterly statement will include:

  • Transactions made during the period
  • Any fees that have been assessed for fee-based accounts
  • And, of course, portfolio performance (or portfolio returns).


It’s important to remember that many things aren’t reported on a statement. It doesn’t mention your financial plan, a reminder of your goals, or the context for why your portfolio value has increased or declined. For this latter context, investors typically look to the news, their friends, and of course, their trusted advisor.

Understanding your returns, how to be objective in reviewing these statements and developing an understanding of what short term statements mean for a long term financial plan can make the process more meaningful (and not to mention, less stressful.)


Understanding your quarterly returns

“How have I done?”

It can be tough to open a statement and see a short term loss. Performance is shown on your statements in both percentage and dollar terms and for some investors, seeing portfolio changes in dollar amounts can make performance feel more intimidating. After all, you’ve worked hard for your money and fluctuating values can be tough to stomach without the bigger picture.

For investors in a diversified portfolio, short term fluctuations in value are inherent to the design of their investment. As markets fluctuate, their investments will also fluctuate to some degree.

For speculators, or others looking to make short term gains, sharp fluctuations in value are par for the course, as there is often higher risk involved in their strategy.

The return requirement and risk level for a financial plan are unique to each investor. In other words, the questions of ‘how have I done?’ can only fully be answered when you look at your goals and personal benchmarks.


Putting your quarterly returns in perspective

Ensuring the benchmarks you use are relevant

You can think of benchmarks as a point of comparison.

When shopping for a new-to-you house, a realtor will often provide comparables or ‘points of comparison’. For these comparables to be meaningful, they will typically be properties that have a similar neighbourhood, square footage, and other amenities to the house that is being considered for purchase. For buyers wanting a property in downtown Edmonton, the realtor would not show an acreage outside of Medicine Hat as a comparable, even if they were around the same price.

Around statement time, benchmarks are often used to gauge how an investor’s portfolio is performing. A good benchmark needs to be relevant, specified in advance, and measurable.

Many investors have heard of the S&P 500 or the Dow Jones, as they are often mentioned across media channels. These are both examples of broad market indices that represent a bundle of different stocks, representing US equity investments in US dollars.

They are reported on in the news because they are a broad measure of specific market growth or decline but, even more so, their frequent fluctuation in point value makes for a good, easy news story, even if viewers don’t know how it applies to them. In actuality, these indices are not a relevant benchmark for most individual investors. They are only a relevant benchmark for someone who is invested in a portfolio that very similarly mirrors the stocks held in these indices. They are not a reflection of a diversified portfolio.

When we turn to the performance of loved ones or peers, this is a benchmark that is not specified in advance, is tough to measure, and irrelevant for most.

However, many investors have heard of “keeping up with the Jones’” and it can feel good to know that your portfolio is keeping up. What makes it tough to measure is that when others are commenting on their own portfolio performance, this commentary is typically heard without the knowledge of fees, asset mix, time horizon, and the goals that were established in building the portfolio. Neighbours who have made 15 per cent annually in their investment portfolio are likely assuming a lot of risk. Something that a balanced investor probably wouldn’t be comfortable with over the long term.

Despite rumblings of broad market performance via the news, or what investors might hear from peers at a coffee shop catch up, the best reflection of how well a personal portfolio has performed over time is by comparing long-term performance to the return expectations that were assumed when their financial plan was created.


Have realistic expectations with your return

To remain objective in the review of quarterly statements, it is also critical to ensure expectations of returns stay realistic and relative to the asset classes an investor is exposed to.

For example, remember we mentioned the S&P 500? From 1982 to the end of 2019, the average annual return on this index of large-cap American equities was 10.25% in USD terms. A lot of investors would say that a 10 per cent return would easily help them to reach their long-term goals. But the other side of this story is that the index also experienced an average annual decrease of -13.55%, with one decline during the 2008 financial crisis of -48%. Overall during this period, 24 per cent of the years ended in negative territory. All of this to say that, a 10 per cent return is rewarding, but if an investor cannot remain invested throughout the average annual declines, they likely won’t see that as their final return.

An investor's performance expectations have to be aligned with the asset class they are invested in and the amount of risk they are willing to assume. If an investor would like to see a similar return to the S&P 500 and the Dow Jones but is only comfortable investing in a very conservative portfolio, a comparison of their performance to these benchmarks isn’t going to be meaningful. Reviewing performance with a critical eye will help to improve the understanding of how a portfolio is built, and how it’s construction works towards an investor’s personal goals as part of a long term financial plan.


Fees impact returns over time

Fees can impact returns in different ways. When looking at statements it is important for investors to ensure that the returns they are looking at are net of management fees. Different investment management firms report their returns differently but will always note if returns are shown inclusive of fees.

Because fees reduce returns over time, they are an important factor in determining success in reaching long-term financial goals. If the fee structure is unclear on your statement, your financial advisor can provide more information.


Understanding the overall time frame on your return

Another important component of evaluating portfolio returns is the time period for which an investment has been held in a portfolio. Most statements will show year-to-date returns (might be shown as “this year”) and one, three, five, and ten year returns. If an investor hasn’t been invested for all of these time frames, they will only see the common time frame. For example, if an investor purchased a mutual fund a few weeks before the statement date, they will not see a one-year or three-year return but rather only a year-to-date or “this year” return.

Paying attention to the time period will allow you to determine if you are experiencing a short-term fluctuation in value or if you are diverting from the return expectation built into your financial plan. If an investor has only been invested for a short time they may not have a good gauge of how “normal” their since inception return is and how it impacts their financial plan. Alternatively, a long term investor can use their three, five, and ten-year return as a gauge to see if they are staying in line with their long-term required return.

In both cases, speaking with a financial advisor surrounding return expectations can give context to short term returns. Past performance does not guarantee future performance, but it can be a great indication of how investments have performed over a variety of market cycles.


Pulling it all together

A quarterly return statement comes with a lot of information, and hopefully, we have cut through some of the jargon.

The common thread in assessing future statements is asking ‘what does this mean for my long-term financial plan?’. If a short-term return shows fluctuations in value - is this typical of the portfolio I’m invested in? Is this volatility built into my long term plan? The long term will look different for everyone, but it’s important to remember that a return statement is just a snapshot in time of your long-term plan.


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