How can I assess the long-term performance of my stock portfolio?

Assessing the long-term performance of your stock portfolio helps you understand if your investments are growing as expected. You can evaluate your portfolio by tracking returns, comparing it with benchmarks, analyzing risk factors, and reviewing market trends over time.

1. Track Your Portfolio Returns

The first step in assessing performance is to calculate your returns:

• Absolute Return: Measures the total gain or loss over a period.
• Compound Annual Growth Rate (CAGR): Shows the average annual return over multiple years.
• Dividend Yield: Evaluates income earned from dividends.

For example, if your portfolio grew from ₹5 lakh to ₹10 lakh in 5 years, the CAGR would indicate its average yearly growth rate.

2. Compare with Market Benchmarks

Your portfolio should be measured against a relevant benchmark, such as:

• NIFTY 50: For a diversified stock portfolio.
• SENSEX: To compare performance against India's top companies.
• Sectoral Index: If you invest in specific industries like IT or banking.

For instance, if your portfolio returns 12% while NIFTY 50 returns 15%, you may need to reassess your strategy.

3. Analyze Risk and Volatility

A strong portfolio must balance returns with risk. Consider these factors:

• Standard Deviation: Measures volatility in returns.
• Beta: Compares stock movement with the market.
• Sharpe Ratio: Evaluates return per unit of risk taken.

If your portfolio is highly volatile compared to market indices, you may need to rebalance it.

4. Consider Economic and Market Trends

External factors impact portfolio performance. Monitor:

• Interest Rates: Higher rates affect stock valuations.
• Inflation: Reduces purchasing power and stock returns.
• Global Trends: Economic slowdowns or geopolitical issues can affect markets.

For instance, rising inflation may impact consumer-driven stocks more than defensive stocks like pharmaceuticals.

5. Conclusion

Evaluating your stock portfolio’s long-term performance requires tracking returns, comparing benchmarks, analyzing risk, and staying updated on market trends. A well-balanced portfolio should deliver consistent returns while managing volatility effectively.

Regular assessment and adjustments help maximize investment success over time.