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Comparing Your Investment Returns To Specific Benchmarks

The thing about investing is that it is not always easy to judge how well you have actually performed over a given year. Of course you can get an idea of the gains you have made in percentage terms, but this does not always give a fair reflection of how well you have done.

For example if you have made five per cent in one year in a really strong bull market, then that could actually be seen as a slight underperformance, whilst a five per cent gain in the year when the markets have dropped substantially is an outstanding effort.

This is why I always recommend that you compare your performance to a certain benchmark. This could be a major stock market index such as the FTSE 100 or the Dow Jones, or it could be one of the better fund managers, or the average return from all the different fund managers. This will give you a much better indication of your performance.

A lot of people will not think about these kind of things when they first start investing. They may only be interested in reading a TradeKing review or a review of Zecco Trading, and getting up and running with a live account as soon as possible. However they will soon realise why they should be analysing their performance at all times.

If you find yourself doing better than a lot of fund managers, then you are doing very well indeed. If, however, you are comparing yourself to a benchmark index, and are making fewer gains than this particular index during the year, you should take a look at what you are actually doing because you may as well invest in a tracker fund instead.