science

Investment performance

Investment performance is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Investment performance rather than just read about it. In short: Investment performance is the return on an investment portfolio, which can contain a single asset or multiple assets. Types Single asset A single-asset investor will only hold one kind of stock, unlike multiple asset investors.

Key takeaways

Investment performance belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Investment performance to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Investment performance from memory before moving on to harder problems.

Reference excerpt

Investment performance is the return on an investment portfolio, which can contain a single asset or multiple assets.

Types

Single asset A single-asset investor will only hold one kind of stock, unlike multiple asset investors. The single-investor fund structure often is investor run. Single-investor funds often are requested, or even required, by investors seeking a kind of structure.

Multiple asset Multi-asset class investments increase the diversification of an overall portfolio by having multiple investments throughout different classes, reducing risks like volatility. A multi-asset class investor might hold stocks, bonds, cash, and real property.

See also Absolute investment performance Absolute return Financial risk management § Investment management Holding period return Modified Dietz Method Internal Rate of Return Rate of return Relative return Risk-adjusted return on capital Simple Dietz Method

Measurement and presentation Investment performance is commonly measured using rates of return over a specified period. Time-weighted returns are used to reduce the effect of external cash flows controlled by the investor, while money-weighted returns reflect the timing and size of cash flows into and out of the portfolio. Performance may also be presented before or after fees, since fees and expenses reduce investment returns and affect the amount received by the investor. Performance figures are often compared with a benchmark, peer group, or stated investment objective to evaluate whether an investment manager or portfolio has added value relative to an alternative measure. The Global Investment Performance Standards provide voluntary standards for calculating and presenting investment performance to clients and prospective clients, with the aim of improving comparability and consistency across investment firms.

References

Further reading Bruce J. Feibel. Investment Performance Measurement. New York: Wiley, 2003. ISBN 0-471-26849-6

Worked examples

Example 1 — a first encounter with Investment performance

Start with the simplest possible case. Write down what Investment performance claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Investment performance before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Investment performance ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Investment performance

In research: Investment performance appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Investment performance in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Investment performance is common in secondary-school and first-year university syllabi. It links to neighbouring topics Finance stubs, Investment, so understanding it makes those chapters shorter.
In everyday life: Look for Investment performance outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Investment performance in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Investment performance means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Investment performance out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Investment performance in simple terms?

Investment performance is the return on an investment portfolio, which can contain a single asset or multiple assets. Types Single asset A single-asset investor will only hold one kind of stock, unlike multiple asset investors.

Why does Investment performance matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Investment performance?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Investment performance.