Understanding Your Quarterly Portfolio Performance: “Actual” vs. “Annual”

One of the most common questions we get regarding the quarterly portfolio performance reports we send to clients is to explain the difference between “Actual” and “Annual” portfolio returns.

For all quarterly reports (except the final report produced at year-end), both “Actual” and “Annual” numbers are printed on the quarterly statement toward the bottom of the “Portfolio Performance Summary” page.

Here’s an easy explanation.  The “Actual” return is used for periods less than a year long, and measures the return earned by your portfolio year-to-date.  For example, for the June 30 quarterly report, the “Actual” return measures how much your portfolio has grown in percentage terms from January 1 to June 30.  If that number is “4.00%,” your portfolio has gained 4.00% since January 1.

The “Annual” number estimates what your annual return would be over a standard twelve-month period, assuming performance remains fairly constant for the remainder of the year. Using the example above, if your “actual” return is 4.00% for half the year, then your “annual” total return for the January 1 to December 31 period will be roughly two-times 4.00%, or 8.00%.

The purpose of using an annualized return is to make it easier to compare one-month, three-month, six-month or shorter period returns with other annualized and historical benchmarks, so that we are always comparing apples to apples.

Think of it like measuring “miles per hour.”  If you drive for 15 minutes, you express your speed in “miles per hour,” even though you’ve only driven 15 minutes. It helps you compare your speed with the speed limit, or with other people who’ve perhaps driven for 23 minutes, or 47 minutes, by expressing everyone’s speed using the same standard of measurement.

Can we help answer other questions about performance or statements?  Just give us a call!






About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!
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