couple looking at papers

Mistake to Avoid Not Monitoring Your Financial Progress and Measuring Results

05/15/24

Taking control of your financial future is a process. As with any process, it is important to monitor your progress and measure results. Doing so will help you to understand how well you are doing and to determine if the financial strategies you are using are working.

A balance sheet provides a business with a snapshot view of its financial status. An income statement measures progress. You should do the same with your personal finances.

Monitoring progress

Preparing a personal balance sheet annually should be part of your financial management. You simply add up all your assets and subtract your liabilities to determine you net worth.

When preparing your personal balance sheet, separate your investment assets into stock, bond and cash categories. Understanding your personal “asset allocation” will help you organize your finances and monitor them. Many financial institutions provide financial statement formats as part of loan applications. You can also find examples in almost any financial planning book.

It also makes sense to track changes from year to year to monitor your progress and determine if you are on track to reach your financial objectives. Here is a chart that provides a basic format you may want to consider using.

Category

2021

2022

2023

2024

Cash

$

$

$

$

Equities

$

$

$

$

Fixed income investments

$

$

$

$

Real estate

$

$

$

$

Personal assets

$

$

$

$

Other assets

$

$

$

$

Total assets

$

$

$

$

Less: Liabilities

$

$

$

$

Net worth

$

$

$

$

Measuring your results

The other step, and the one that is more difficult, is determining how well you are doing. Determining your “absolute results” or if your net worth has increased from year to year is easy. Determining your “relative results” or how well you are doing compared to the rest of the financial world is not easy. If your stock portfolio went up 15%, that is good if the overall market was only up 10%. However, if the market was up 23% during that same period, a return of 15% is not so good.

Measuring your results can be difficult in two ways. First, just doing the calculation can be complex, especially if you added or withdrew money from your portfolio during the year. It is also difficult to know what formula to use.

There are rate-of-return calculation tools in many computer software programs. If you are using a spreadsheet program, use the internal rate of return function to calculate the total return on your portfolio.

Second, you must have some basis of comparison to measure how well you did relative to a benchmark. If your portfolio is all stocks, you may want to compare your returns with those of an index like the S&P 500. If your portfolio is all bonds, you may want to use the return on long-term government bonds as a comparison.

You can also compare your returns with quoted mutual fund returns. But remember to compare with a fund that has a similar make-up of its portfolio. If you are a conservative investor with a portfolio of blue-chip issues, don’t compare your returns with an aggressive small company mutual fund.

Here is a chart of recent and long-term average returns for three classes of investments.  You may find it useful for making comparisons. These returns take into account dividends, interest and changes in value. They also reflect an “internal rate of return” calculation that is similar to reinvesting your dividends and interest. The year 2008 was a bad one for stocks with the S&P 500 index falling 37%.

Period

S&P 500

Long-term government bonds

Short-term treasury bills

2022

-18.1%

-26.1%

1.4%

2021

28.7%

-5.41

0.04%

2020

18.4%

16.7%

0.5%

2019

31.5%

19.9%

2.1%

2018

-4.38%

-0.57%

1.8%

2017

21.8%

6.2%

0.8%

2016

12%

1.8%

0.2%

2015

1.3%

-1.7%

0.2%

2014

13.7%

23.9%

0.0%

2013

32.4%

-11.4%

0.0%

2012

16.0%

3.3%

0.1%

2011

2.1%

28.2%

0.0%

2010

15.1%

10.1%

0.1%

2009

26.5%

-14.9%

0.1%

2008

-37%

25.87%

1.60%

2007

5.49%

9.88%

4.66%

2006

15.80%

1.19%

4.80%

2005

4.91%

7.81%

2.98%

2004

10.87%

8.51%

1.20%

2003

28.70%

1.45%

1.02%

2002

-22.10%

17.84%

1.65%

2001

-11.88%

3.70%

3.83%

2000

-9.11%

21.48%

5.89%

 

 

 

 

5 years – 2018 to 2022

9.4%

-1.9%

1.2%

10 years – 2013 to 2022

12.6%

0.7%

0.9%

20 years – 2003 to 2022

9.8%

4.0%

1.2%

Next steps

If your results meet your expectations, keep doing what you are doing. If your results do not measure up, you may want to take actions to improve them. This could include changing your stock selection process, urging your stockbroker to help you make better decisions, giving the responsibility to a professional investment advisor or choosing a different mutual fund.

Personal - Banking Products and Services

Ready to explore how Sunflower Bank can assist you? Speak to a personal banker at a branch near you, contact a specialist on our Wealth Management team, or find the right financial partner on our Commercial Banking team for your business needs. 

Back to Resource Articles

This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.