- Tax Planning
- Investments 1: Before you Invest
- Investments 2: Your Investment Plan
- Investments 3: Securities Market Basics
- Investments 4: Bond Basics
- Investments 5: Stock Basics
- Investments 6: Mutual Fund Basics
- Investments 7: Building Your Portfolio
- Investments 8: Picking Financial Assets
- Investments 9: Portfolio Rebalancing and Reporting
- Retirement 1: Basics
- Retirement 2: Social Security
- Retirement 3: Employer Qualified Plans
- Retirement 4: Individual and Small Business Plans
- Estate Planning Basics
Step 4: Calculate Your Attribution and Make Decisions Accordingly
Step 4: Calculate Your Attribution and Make Decisions Accordingly
Once you have the information from steps one through three, the easiest way to calculate the attribution is to put the information into a portfolio attribution spreadsheet (see Learning Tool 17: Portfolio Attribution Example in the Learning Tools section of this website).
It is important to attribute the portfolio’s performance to specific factors, such as asset allocation or security selection, because these factors can affect the portfolio’s performance. A portfolio attribution analysis can help you evaluate how well you are managing your financial assets. If you do not perform a portfolio attribution analysis, you will not understand the reasons your portfolio is performing the way it is, and you will not understand the steps you could take to improve its performance.
Monitoring Long-Term Performance of Mutual Funds
It is not necessary, or even recommended, that you include high-priced, actively managed assets in your portfolio. Ideally, your portfolio should include both managed mutual funds composed of asset classes that consistently beat their benchmarks and passively managed index funds composed of asset classes that slightly under-perform their benchmarks after taxes and fees. No matter which funds you include in your portfolio, you must monitor the funds’ performance carefully.
Once you decide to include a mutual fund in your portfolio, you should stick with that fund for a minimum of two or three years. This is important, especially if you choose to invest in actively managed funds. Do not take investment decisions too lightly. When you are evaluating the performance of mutual funds, realize that below-benchmark performance for a month or a quarter is normal, but the returns on the fund should be positive over a period of two or three years. If the returns on a particular fund do not come close to mirroring the benchmark’s return over an extended period of time, you may want to sell that fund and purchase a low-cost index mutual fund that will give you market returns.
