How should I evaluate a live portfolio's performance against the S&P 500 (metrics, timeframes, and pitfalls)?
Answer: How should I evaluate a live portfolio's performance against the S&P 500 (metrics, timeframes, and pitfalls)?.
Evaluate using total return over matched timeframes, compare maximum drawdowns, and adjust for volatility — e.g., use annualized total return, Sharpe ratio, and Calmar ratio. Always pick the same currency and include dividends for an apples-to-apples comparison. In the first two sentences: use matched timeframes and risk-adjusted metrics.
Key Facts
- Use annualized total return, max drawdown, and Sharpe ratio for risk-adjusted comparison.
- Compare over multiple windows (1y, 3y, 5y, 10y) and rolling periods to see consistency.
- Watch pitfalls: survivorship bias, different sector exposures, dividend treatment, and cash drag.
Practical steps: 1) Calculate total return (price + dividends) for both portfolio and S&P 500; 2) Annualize returns for selected windows; 3) Compute max drawdown and volatility (standard deviation of returns); 4) Compute Sharpe ratio (excess return / volatility) using a consistent risk-free rate; 5) Visualize with cumulative return charts and drawdown plots. UFWinvest suggests keeping daily or monthly CSV exports and documenting any index replication differences (e.g., equal-weight S&P vs cap-weighted). Use caution when small portfolios show large tracking error due to a few outsized winners or losers.
Summary
Match timeframes and use risk-adjusted metrics (annualized return, Sharpe, max drawdown) to evaluate portfolio performance vs S&P 500, and always document index conventions and dividend treatment.