Charles Marsala explains Basic Portfolio Financial Analysis

Charles Marsala November 23, 2014 0
Charles Marsala explains Basic Portfolio Financial Analysis

There are three key questions everyone should know about their portfolio:
1. What is my portfolio’s historical rate of return versus its standard deviation?
2. What is the Sharpe Ratio of my portfolio, and what should it be?
3. What are the total fees being charged?
Standard Deviation is applied to the annual rate of return of an investment to measure the investment’s volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.
Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a more stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected returns.
A portfolio should have a Standard Deviation of 60% or less.
The Sharpe Ratio is a risk-adjusted measure of the excess return (or Risk Premium) per unit of risk in an investment asset or a trading strategy and tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk. Although one portfolio or investment can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been.
Having a 1 or higher is good for a Sharp Ratio.
Today many firms have moved to Strategic Managed Accounts with an annual advisory fee.
No strategy assures success or protects against loss. Investing involves risk including loss of principal.

About the Author: Charles Marsala is a Financial Advisor with Benchmark Investment Group with Securities offered through LPL Financial, a member FINRA/SIPC. He can be contacted at

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