How to improve your investment returns in one simple step
If you invest your own money, and you’re looking to improve your performance, here is one simple tip you should consider: measure your returns. This may sound like common sense, but it’s remarkable how many of us are averse to critical reflection.
An attitude of critical reflection is not only effective for your financial performance, but any area in your life where you desire improvement. Bill Gates has been “struck again and again by how important measurement is to improving the human condition. You can achieve amazing progress if you set a clear goal and find a measure that will drive progress toward that goal in a feedback loop… This may seem pretty basic, but it is amazing to me how often it is not done and how hard it is to get right.”
Indeed, Bridgewater’s culture of radical truth and radical transparency has helped it become one of the largest and most successful fund managers in the world.
But you don’t have to go to the extreme lengths of Bridgewater for improvement. Simply measuring your returns and comparing it to a benchmark can go a long way in identifying what works and what doesn’t. The more you monitor, the more effective your investing process becomes.
And if, ultimately, this critical reflection highlights a gap between your actual returns and your desired returns that you’re unable to close, you at least have an objective measure to consider when entrusting your capital management elsewhere.
So if you’re looking to improve your long-term financial health, embody the mantra – “what gets measured, gets managed”.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Pearson’s Law: “That which is measured improves. That which is measured and reported improves exponentially.” – Karl Pearson
“When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.” – Thomas S. Monson