The Balance Trend feature, found in the Performance menu of your Investor’s Edge account, allows you to assess how your investment decisions have performed. Balance Trend illustrates the movement of total asset value in your accounts over time.
Total asset value combines cash and the market value of your assets, and is available for different selected time periods. Total asset value includes income (dividends and interest) and distributions, and the account’s realized and unrealized gains or losses.
Let’s look at a few of the ways investors can use this feature.
Scenario #1: Budget and Work Towards a Financial Goal
You’d like to purchase a new car sometime this year. While you’re willing to take a loan for part of the purchase price, you’d also like to have $5000 available to help finance the purchase.
The Balance Trend feature uses graphics to illustrate how close you are to achieving your $5000 goal. As you monitor your balance trend over time, you might consider increasing your account contributions to achieve your goal more quickly, or you might notice that a different portfolio mix could have a better chance of reaching the goal. Alternately, you might realize that you’ll be able to buy that car in August rather than November if the current trend continues.
Scenario #2: Understand and Refine Investment Performance
It’s the end of the year and you’re studying your investment returns to see how they compare to some performance benchmarks. A look at your portfolio breakdown shows that you hold a few conservative stocks, some fixed income ETFs and some cash.
Your overall return for the year was 12% while the market returned 10%. You congratulate yourself on your investing expertise, but are there additional lessons from the data that could help you evaluate your investment performance?
Let’s imagine that you made no contributions or withdrawals during the year.
You notice that equity markets rose 30% over the summer months, while your balance trend was almost flat. Moving into the fall months, the market gave up some gains, losing 15%, while your account balance rose 5%. Remembering that you’ve set up your portfolio to preserve capital and maintain low volatility, you now have some confirmation that the portfolio is working as it was designed. This conservative balanced portfolio didn’t fully participate in the sharp equity rally but did its job of preserving your capital during declines.
While Balance Trend shows account information in dollar terms, the Rate of Return tab presents the information in percentage terms. To give you more details on Rate of Return analysis, we’ve linked to the article below.
Time-weighted and money-weighted rates of return: A comparison (4-minutes)
