In the investment approach I take, there are 3 steps. Decide on an asset allocation, decide how to invest, and monitor your investments. Here we have an asset allocation, and are investing in low-cost, well diversified funds. The final step is to monitor, i.e., track so that you can see if you are in fact achieving your goal of outperforming the market. In our specific, we are monitoring the percentage of assets allocated to fixed income.
The exercise here is merely instructive to show the process. It has only been 3 weeks since the beginning of the year, at which point the portfolio was set up. This exercise would, at most, be updated when changes are made or on a monthly or quarterly time schedule. Again, here I'm just setting out the process.
Calculate Portfolio Price Return
Step 1 is to gather prices. This can be done by going to Morningstar or Yahoo! Finance, for example.
|(P) 12/31||(P) 1/18|
The 1st column on the left lists the ticker symbols of the ETFs comprising the portfolio set up in the last post. In the 3rd column are the updated prices. The 4th column shows the calculated price returns. For example, HYS had a price return of 1.218% over the 3-week period. Here's the formula as entered into Excel: =((I2/H2)-1)*100, where I2 and H2 refer to particular cells on the spread sheet.
The final column shows the contribution to total return based on the weighting of each ETF in the portfolio. Here's the formula: =C2*J2. For HYS, C2 is .049 (meaning that it represents 4.9% of the portfolio). Thus, .059, shown above, is just .049 * 1.218.
The bottom line is that, so far, the portfolio is ahead with a return of .313% versus -.135% for the overall bond market as represented by the Barclay's Aggregate Index.
A teaching moment: the reason the price return on AGG is negative is because bond yields have risen since the beginning of the year!
For this short time period, the result doesn't have a whole lot of meaning - I would hold back on the high 5s! Also, there is an income component that over longer periods you'll want to add in. For example, after 6 months you'll add one-half of the yield to get an estimate of total return.
Knowing how to use the copy key in Excel and how to sum columns makes this an easy spreadsheet to set up and can increase your understanding of how the fixed income portion of your portfolio is performing relative to the overall market.
Disclosure: This post is for educational purposes. Individuals should consult with an advisor or do their own research before making an investment decisions. My clients and I own some of the ETFs mentioned above.