Are you making the mistake of paying too little attention to your portfolio’s long-term performance? Rest assured, you’re not alone. Too many savers put their portfolio’s performance on the back burner or don’t consider it enough. However, an underperforming portfolio can lead to significant lost earnings in the long run and even jeopardize certain financial projects, including retirement.

This is why Medici and Les Affaires recently presented a free webinar on the importance of returns. Click here to watch the replay of this presentation.

Hosted by Catherine David, content manager for Les Affaires, this webinar brought together portfolio managers and partners Pierre-Olivier Langevin and Yannick Clérouin from Medici

A major difference after a few years

During the webinar, Pierre-Olivier and Yannick emphasize that even slightly lower performance than the benchmark can result in a significant dollar gap over several years.

They give the example of two portfolios with an initial amount of $100,000 that will be invested over a 20-year period. The first portfolio provides an annual return of 10%, which is the historical performance of the stock market over the past hundred years. The second portfolio shows an annual return of 6%. This 4% annual gap thus results in a shortfall of $350,000 after 20 years. Over 40 years, a period representative of many savers’ working lives, the difference in returns between the two portfolios amounts to $3.5M!

Medici has conducted over 150 portfolio analyses over the past 15 years. Pierre-Olivier and Yannick note that the underperforming portfolios we’ve analyzed often show a gap of 3% to 5% per year compared to a benchmark representative of the North American stock market.

Benchmarks, essential tools

To improve your portfolio’s performance, it’s essential to be able to compare the returns obtained with a comparable benchmark.

The absence of an adequate benchmark is, in fact, the most frequent error that the Medici team notices when analyzing potential clients’ portfolios.

It’s essential to be able to compare your portfolio’s performance to that of a similar benchmark, both for the equity portion and the fixed income portion, if applicable.

Don’t hesitate to ask your advisor or portfolio manager to provide you with a comparable representative benchmark to adequately evaluate your portfolio’s performance. Don’t settle for a series of results obtained by different mutual funds, for example. It’s useless to know the performance of individual investments; it’s the overall picture that counts. Your advisor must make it their duty to provide you with a benchmark representative of your portfolio.

Let’s talk about returns

A portfolio manager who creates value for their clients should be proud to display the returns they’ve achieved. Unfortunately, too many players in the financial industry present returns as a commodity and don’t highlight them in the reports they give to clients.

Obviously, no portfolio manager can avoid less favourable years. That’s why transparency and a long-term vision are essential qualities to find in the professional managing your money. Are they only giving you results for two or three years? Ask them for longer-term results, over 5 years, 10 years, and since the beginning of the mandate you’ve given them.

Good portfolio managers must be accountable to their clients and talk to them about both their successes and failures. Frank, regular, and effective communication is one of the cornerstones of long-term success in financial goals, Pierre-Olivier and Yannick explain during the webinar.

The strategy

Medici’s portfolio managers and partners also highlight the importance of an investment strategy like Medici’s to achieve better long-term performance.

At Medici, we believe it’s crucial to invest in quality companies that display superior economic performance, possess sustainable competitive advantages, and value sound governance. Finally, patience is needed to find companies that combine all these qualities in order to buy them at a reasonable valuation.

To learn more, watch the webinar for free on YouTube (in French).

Do you have questions about your returns or investments? We’ll be happy to provide you with a second opinion on your portfolio management. We invite you to contact us.