We often talk about treating your personal investments the way you would run a business. Knowing your cash flows, profits and losses, and balance sheet keeps Investment Me on track to hit the goals. If that sounds daunting, know that software makes this easier than ever. Once you have this set up (email me to find out how to do this) here are the 5 key metrics you can monitor monthly, quarterly or annually to make sure your investments match your goals.
If I had a significant change of income or circumstance, could my investments handle that transition? Can I extract enough cash to get me through a few months without triggering significant taxes or selling something I don’t want to sell?
Investments vary widely in liquidity. Stocks, ETFs and mutual funds can be sold immediately. Hedge funds and private equity funds can typically make cash available to you within 90 days. Real estate has roughly a 200-day window for liquidity. Lastly, private investments, loans to friends or angel investments have very little to no liquidity. In a cash flow crunch, knowing this information is invaluable.
In a worst case scenario, how much of my investments can go to zero?
An index fund, representing hundreds of securities, is extremely unlikely to fall to zero value or to cents on the dollar. But an individual stock can; you may have had one yourself. An investment in your friend’s startup may go to zero overnight. You and your advisor should rank your investments by catastrophe risk. You get rich through concentration, you stay rich through diversification.
Where can I expect my best returns? Where is the outperformance? Well, relative to what? A $25K angel investment better return more than your stock portfolio. Your stocks have more potential to grow than bonds. High yield bonds have more potential to grow compared to Treasuries, and so on. Ask us for a deeper conversation on this topic and we’d be happy to do an investment MRI on your portfolio.
What is my annual rate of return on ALL investment assets? Not just my trading account or 401k. Most people have no idea, but can and should. Technology makes it easy now to both inspect the trees and survey the forest. With the OsbonCapital.com portal, you can see how your investments performed over any time period, by individual assets, per account and for the entire book of investments. You should expect full reporting as a fundamental right.
It it too much or not enough? Most people don’t fully understand the role of debt in their portfolio. Debt accelerates your returns. Too little debt and you might sense that you’re stuck in the slow lane. Too much and it’s only a matter of time until you hit an uncomfortable capital crunch. Consider all debt, margin loans, credit cards, kids’ student loans, mortgages, etc. We’re happy to discuss how much debt is appropriate for you and your family’s goals.
The beauty of these metrics is they can all stand alone without a narrative or an explanation. They’re objective and impossible to spin. Remember that you can’t manage what you don’t measure. Big money, like your alma matter’s endowment or your state’s pension, absolutely knows these numbers. Shouldn’t you have them for your portfolio?
Max Osbon- firstname.lastname@example.org