Evaluating Your Investment Performance

Many plan participants evaluate their investment performance by asking just one question: Did it go up?

However, if this is the only question you ask, you may not be getting the complete picture. For example, let’s say one of your investments begins the year at $10,000 and ends the year at $10,700. You may be happy with the 7% return. But what if most other investments with similar objectives to yours rose 10% over the same 12-month period? From that perspective, your investments' performance might not measure up.

There are a few things to remember if you want to keep track of how your investments are doing.

  • Review a common measure of investment performance. Look at an investment’s total return to find out how much it has made or lost.
  • Measure the performance of your investment option against that of a similar option or a benchmark, like a market index. A market index is designed to measure price changes of an overall market, such as the stock market or the bond market.
  • Put performance in perspective when reviewing your investment mix.

Review total returns

Reviewing the total return for each investment in your plan is a good place to start in order to see how the investments in your workplace savings plan are performing. Total return reflects the change in the overall value of your investment over a given period. Your plan’s quarterly statement usually lists two types of total return:

  • Cumulative total return: Cumulative total return reflects actual performance over a stated period of time.
  • Average annual total return: Uses an investment’s cumulative return and shows what would have happened if the investment had performed at a constant rate over the entire period. Investors generally look at the one-, five-, and 10-year average annual total returns.

Remember that past performance does not guarantee future results. In addition, keep in mind that investing involves risk—the value of your investment will fluctuate over time and you may gain or lose money.

Review market indexes

Once you know your investments’ historical total returns, you should compare their performance with appropriate market indexes, or “benchmarks,” that measure the ups and downs of different types of assets. Your plan’s quarterly statement lists appropriate benchmarks for the investments in your workplace savings plan.

Some of the most common are named here.

General Stock

Dow Jones Industrial Average: The Dow Jones Industrial Average (DJIA) is an unmanaged priceweighted index and is the most widely used indicator  of the country’s economic condition. Also known as “the Dow,” it’s a formula based on the stock prices of 30 major companies.

Standard & Poor’s 500® Index: The S&P 500® Index is an unmanaged index of the common stock prices of 500 widely held U.S. stocks that includes the reinvestment of dividends. The S&P 500 Index is one of the most widely used benchmarks of U.S. equity performance. The S&P 500 Index is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates.

Small-Company Stock NASDAQ Composite® Index (National Association of Securities Dealers Automated Quotation [NASDAQ]): The NASDAQ Composite Index is an unmanaged market capitalization–weighted index of the National Market System, which includes more than 5,000 stocks traded only over the counter and not on an exchange.

International Stock

The Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE®)—The MSCI EAFE® Index is an unmanaged market capitalization–weighted index designed to represent the performance of developed stock markets outside the United States and Canada.

Bond

Barclays Capital U.S. Aggregate Bond Index—The Barclays Capital U.S. Aggregate Bond Index is an unmanaged market value–weighted index for U.S. dollar–denominated investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Indexes are unmanaged and you cannot invest directly in an index.

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