tag:blogger.com,1999:blog-2568941354104807757.post943751259425433954..comments2023-10-05T09:07:24.225-04:00Comments on Investment Performance Guy: Should returns be net of inflation?Dave Spauldinghttp://www.blogger.com/profile/01777929408680234896noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2568941354104807757.post-51137954699060048912013-07-16T12:07:47.873-04:002013-07-16T12:07:47.873-04:00Thanks, Steve. As always, we appreciate your thoug...Thanks, Steve. As always, we appreciate your thoughts and insights!Dave Spauldinghttps://www.blogger.com/profile/01777929408680234896noreply@blogger.comtag:blogger.com,1999:blog-2568941354104807757.post-62983612450310394782013-07-16T12:07:23.362-04:002013-07-16T12:07:23.362-04:00FROM STEVE CAMPISI, CFA
Bravo. You almost get this...FROM STEVE CAMPISI, CFA<br />Bravo. You almost get this right. To get this completely right, you will have to fully embrace the idea of seeing performance reporting as a responsibility to provide information that helps asset owners see that they are achieving their financial goals. You are still somewhat stuck in the details of the pieces of the puzzle (individual funds vs. total portfolio) and you still express the returns as a goal, instead of a means to an end and not the end itself.<br /><br />Showing a client how many dollars they've earned, but not what those dollars can buy is nearly useless. The same is true for returns that are partially the result of the inflation factor. Even if we were to express the client's goal in terms of a return, that return would have to be adjusted for inflation, since the goal of investing is to increase wealth, or purchasing power. <br /><br />In addition, when we introduce the reality of inflation, we see that this changes not only return but risk. After inflation, risk tends to increase slightly and correlations between assets increase, thereby decreasing expected diversification and increasing the volatility of portfolios. The "real" world is quite a bit different than the fantasy of the nominal return world. This is especially true as investment horizons and performance reporting periods increase, in line with client goals. Isn't this what performance is (or should be) all about - showing clients whether their investments are meeting their financial goals? Or are we still stuck on "the mission" of simply helping fund managers sell their wares?<br /><br />If you're still wondering if inflation matters, and whether it should be included in performance reports, just ask yourself: "Does it matter how much my money will buy?"Dave Spauldinghttps://www.blogger.com/profile/01777929408680234896noreply@blogger.com