Portfolio performance measures are a key factor in the investment decision. These tools provide the necessary information for investors to assess how effectively their money has been invested (or may be invested). Remember, portfolio returns are only part of the story. Without evaluating risk-adjusted returns, an investor cannot possibly see the whole investment picture, which may inadvertently lead to clouded decisions.
Many investors mistakenly base the success of their portfolios on returns alone. Few investors consider the risk involved in achieving those returns. Since the 1960s, investors have known how to quantify and measure risk with the variability of returns, but no single measure actually looked at both risk and return together. Today, there are three sets of performance measurement tools to assist with portfolio evaluations.
