How to Read Investment Statements with Confidence
Do you glance at investment statement balances and think, “Wow- I’m doing great!” or “Oh no! What happened?” While it’s common to check balances and disregard the rest, knowing how to read your statement empowers you and helps you ask better questions, even without understanding all the details.
“What is this Money For?” If you can answer this, you’re ahead of the curve. Return expectations should be based on your investment objectives and timelines. Your grandchild’s college savings should grow very differently than the money you’ve set aside for a new house in two years.
With investment goals and timeframe in mind, look for the below key statement sub-headings:
- Account Balance – The amount in your account on the statement date. This reflects both returns and deposit/ withdrawal activity.
- Return – Investment performance for the specified period (year-to-date, quarter, etc.) This includes price movements and reinvested investment income.
- Contributions and Withdrawals – Deposits made into and withdrawals from your account. Note: Taking withdrawals during market downturns can have an alarming effect on returns and balances. When prices drop significantly, more shares are sold to raise distribution proceeds.
- Unrealized Gains and Losses – The amounts by which investment values have changed since purchase. These figures represent change in values only and can change substantially between statements. However, selling investments held in taxable accounts cause unrealized values to become “realized” and reportable on your tax return.
Note: Gains on investments held for one year or less are taxed at income rates instead of the friendlier capital gains rates.
Comparative Performance- Better than What? How do you know if performance is good or bad? It’s not a simple matter of values rising or falling. Returns should vary based on personal investment objectives, so don’t compare results with a neighbor’s or market headlines. If returns are negative, your portfolio manager isn’t necessarily doing a poor job. You’ll want to compare results with a proper benchmark index.
An index is a selection of securities representing a broad market segment. For example:
- The S&P 500 – Represents large company stocks in the U.S.
- The MSCI EAFE -Represents mid-large company stocks of developed-markets (excluding U.S and Canada).
- The Bloomberg Aggregate Bond Index- Represents broad U.S. fixed income.
- The U.S. 3-month Treasuries Index- Represents cash/ money market investments.
Investments cannot be made directly into an index. However, index funds are available for this purpose.
A benchmark is an index used to measure portfolio performance. Remember the “risk/reward tradeoff.” Higher returns often involve higher risk. Though “long-term growth” portfolios tend to be volatile with wide fluctuations, they also tend to perform better over full market cycles. So, headline warnings shouldn’t worry you if your time horizon is long-term. *Ask your advisor which benchmark best represents your portfolio.
Still unsure what your statement is telling you? Please don’t hesitate to call- A brief conversation can help put your numbers into perspective. Always remember,
Your Best Tomorrow Starts Today!
The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action.
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