- Your long-term performance threshold.
No one sets out to buy a clunker; you add stocks, bonds or funds to your portfolio expecting superior results.
Sometimes, the early returns are particularly good; you buy a recent standout and the hot performance continues. That can make you comfortable sticking around even if performance regresses.
Too often, investors stick with fallen angels, investments that “were good to me once.”
I’m not immune. I recently looked at a longtime Roth IRA holding where the fund’s 15-year track record is great, but 10-year returns are well below average. I shouldn’t have been surprised — the fund lagged its peer group in seven of the past 10 years — yet I was.
I was so focused on the longest-term results that I let recent underperformance slide. Yet with all of the recent trends being negative, my review made it obvious that the fund’s best days are behind it.
With no reason to expect a reversal in that performance trend, I made a change.
Too often, investors are so satisfied to see progress that they fail to see that their holding is, relatively speaking, a laggard.
Come up with guidelines for your expectations. Look at both absolute and relative performance to determine your satisfaction.