I have been buying stocks and mutual funds in non-US market for about 5 years or so. I have been using the portfolio tracker from Investment Moat for a while, which the tool lets me know whether I am making a profit or not for a specific stock/ mutual fund at the moment, which helps me to decide whether I should lock the profit now. But the tool can't tell me my annual performance.

Since I recorded most, if not all, of the transactions I made since 2011, I am thinking of evaluating the annual performance of my portfolio, so to plan for my next move in the upcoming year. I read a bit from Investopedia and found a few metrics for measuring portfolio, such as IRR, ROI. I am thinking of using IRR because my cash flow is likely to be irregular.

I wonder if there is any example that I can follow, so I can then know that I am evaluating my portfolio appropriately.

Follow-up questions are welcome. Thanks!


The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments...

So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities.

First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals.

The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time.

IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.

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