What is Investment Performance Analysis
Investment performance analysis is the process of evaluating how well your investment portfolio is doing. It goes far beyond just checking your account balance or tracking the latest price movements. True performance analysis involves reviewing key indicators such as:
- Portfolio Expected return: The average annual return you might expect, based on the expected returns of your individual assets in the portfolio.
- Portfolio Volatility (risk): How much your portfolioâs value might fluctuate when the prices of individual investments in the portfolio fluctuate.
- Sharpe ratio: How much return youâre getting for each unit of risk taken.
- Diversification metrics: How spread out your investments are across individual investments, sectors, asset classes, or geographies.
- Alpha and Beta: Measures of performance versus the market, and sensitivity to market moves.
With tools like Diversiview, you can run portfolio analyses and view these expected performance indicators, compare your portfolioâs expected risk-return position to thousands of alternative risk-return positions in the Portfolio Universe, and see at a glance whether your current mix is helping you reach your goals.
Why Many Portfolios Underperform
Many investors are surprised to find their portfolios lagging behind market benchmarks or personal expectations. Often, this underperformance is not due to bad luck or market timing, but rather a handful of common, avoidable mistakes. By understanding and addressing these pitfalls, investors can take meaningful steps to improve their investment performance analysis and long-term outcomes.
Mistake #1: Over Concentration in One Asset or Asset Class
Putting too much of your portfolio into a single stock, sector, or asset class exposes you to unnecessary risk.1 If that one investment suffers, your entire portfolio can take a significant hit. Diversification, spreading your investments across different asset classes, industries and geographies, remains one of the most effective ways to reduce total portfolio risk and smooth out returns over time.
Tip: Use Diversiview Portfolio Analysis Tool to check your exposure and rebalance if any single position exceeds your risk comfort.
Letâs look at an example portfolio scenario using Diversiview with the holdings in the table below:
| Holding (Stock/ETF) | Asset Allocation |
| BHP Group | 40% |
| Commonwealth Bank (CBA) | 30% |
| CSL Limited | 20% |
| ETF (ASXE200) | 10% |
This portfolio is heavily concentrated in just three stocks, with only a small allocation to a broad-market ETF. If BHP or CBA underperform, your whole portfolio suffers. Also, there is a very strong correlation (0.89) between E200 and CBA, due to CBA being a large holding of E200 (approx 14%). Diversiviewâs granular diversification diagram on the Portfolio Analysis page highlights these risks, showing you exactly where your exposures lie.
This correlation diagram for granular diversification shows correlations between pairs of individual investments in your portfolio.
The Portfolio Analysis page also shows that, for this set of holdings, there is an optimal allocation that maximises the expected return of your portfolio (20.34%). For an initial USD100K portfolio, this could translate to an extra future value of USD340,745 after 10 years (not taking volatility or inflation into consideration).
Mistake #2: Lack of Periodic Rebalancing
Markets are dynamic. Over time, some investments will grow faster than others, causing your portfolio to drift away from your intended risk-return goal. Without periodic rebalancing or re-optimisation, you may end up with a portfolio risk profile that no longer matches your risk tolerance, or a total portfolio return that no longer matches your expectation of returns.1 Regularly reviewing and adjusting your portfolio helps maintain your desired balance between risk and return.
Tip: Set a schedule (e.g., quarterly or annually) to review and rebalance your portfolio. Quickly and easily analyse or rebalance your portfolio to an Optimal or Efficient Frontier portfolio position. Diversiview also calculates your portfolioâs expected return, volatility, Sharpe ratio, alpha and beta in the new allocation so you can see whether you could expect an improvement in any of those.
Mistake #3: Chasing Recent Performance (Recency Bias)
It is tempting to pile into the latest âhotâ stocks or funds based on recent gains or media highlights of specific securities. However, past performance is not a guarantee of future results, although it provides an expectation of those future results.2 Chasing winners can lead to buying high and selling low, which erodes long-term returns. A disciplined, evidence-based approach, rather than reacting to short-term trends leads to better investment performance analysis.
Tip: Stick to your investment plan and avoid making decisions based on headlines or recent price movements.
Mistake #4: Ignoring Fees and Taxes
Even small fees and tax inefficiencies can eat away at your returns over time. Many investors overlook the impact of management fees, trading costs, and capital gains taxes.3 Being mindful of these costsâand seeking tax-efficient strategiesâcan significantly improve your net investment performance.
Tip: Compare fund expense ratios, minimise unnecessary trades, and consider tax-advantaged accounts where possible.
Mistake #5: Not Aligning Risk Profile with Investment Goals
A portfolio that is too aggressive or too conservative for your personal goals can lead to disappointment or unnecessary stress.4 Your risk tolerance should reflect your investment horizon, financial objectives, and comfort with market fluctuations. Failing to align these factors often results in panic selling during downturns or missed opportunities for growth.
Tip: Reassess your risk tolerance regularly, especially as your life context changes (new family, new job etc) and adjust your asset allocation as your goals or circumstances change.
Portfolio Mistakes vs. Optimised Performance
| Scenario | Portfolio Expected Annual Return | Expected 10-Year Growth (on $100k) | Expected 10-Year Extra Future Value |
| Portfolio in Table 1 above – Not optimised | 11.47% | $296,196.56 | $0 |
| Portfolio in Table 1 above – Optimal Portfolio* allocation | 20.34% | $636,942.27 | $340,745.71 |
Table 2 above compares the investment performance of an optimised portfolio against the portfolio from table 1, that is heavily concentrated in just three stocks, portfolios and an ETF. The negative impact of these errors on long-term returns is clear, underscoring the value of disciplined, evidence-based investing.
Conclusion
Avoiding these five common mistakes can make a significant difference in your investment journey. By leveraging the Diversiview for the best portfolio optimisation software and investment analytics tools, you can compare your current allocation to thousands of alternatives, test different scenarios, and find the optimal mix for your goals. Whether you are seeking Efficient Frontier investing or want to explore types of portfolio re-optimisation, Diversiview empowers you with data driven research and a seamless portfolio analysis experience. This approach ensures you benefit from portfolio diversification, robust risk management, and a clear path toward your financial objectives.
Take control of your financial future! Open a free Diversiview account and get one FREE Portfolio Analysis, and discover how smart, data-driven decisions can help you achieve your goals.
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Note: Diversiview does not provide financial advice or recommendations. Investment Portfolio Analyses are intended to provide investors with data driven insights and information. You should do your own further research, or speak with a licenced professional before making changes to your investment portfolio.
References
- https://advisor.visualcapitalist.com/20-most-common-investment-mistakes/
- https://imarticus.org/blog/common-mistakes-in-portfolio-management/
- https://www.cfainstitute.org/sites/default/files/-/media/documents/support/future-finance/avoiding-common-investor-mistakes.pdf
- https://www.investopedia.com/terms/r/risk-profile.asp