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Friday, July 18, 2014

Show me your numbers

Most investors don't really know how they are doing.

One reason is that many investment advisers don't report their performance. Jason Zweig pointed this out in a Wall Street Journal article this past weekend.

Another reason is that most investors don't know what the numbers mean. Are the numbers reported before fees or after fees? Do the numbers include contributions and withdrawals, or are they time-weighted to remove that impact (investment advisers shouldn't get credit for your deposits)? Is performance compared against a relevant benchmark? Many advisers would prefer to keep their clients in the dark, otherwise such clients would know how poorly they are doing.

Even more investors don't really want to know how they are doing. It's kind of like deciding to step on the scale--or not--after the holidays. Do you really want to know how much weight you've put on?

But, not reporting, not understanding, and not looking won't change the underlying reality. Reaching your financial goals is too important to play ostrich.

Make sure your investment adviser reports their performance accurately. Such results should comply with industry standards, include fees, adjust for deposits/withdrawals, and be compared to a relevant benchmark. 

If you don't understand the numbers, ask questions. Evasive answers should raise red flags in you mind. Clear descriptions should give you comfort.

If you want peace of mind, you need to know where you are going and whether you are getting there. With investing, accurate reporting is not a nice-to-have, but a necessity.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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