When investment statements arrive, investors will typically notice a ‘performance’ figure on the statement. For many statements there are two figures, one showing year-to-date performance and one showing the previous year performance. So, what exactly is this number, how is it arrived at and how important is it?

Overall, performance on statements simply reflects the aggregate ‘return’ on the portfolio’s investments. Individually, an investment’s return is ostensibly arrived at by combining two things:

1. How much income (if any) the investment pays
2. How much the investment has increased or decreased in ‘market value’

When these two components are added together, you arrive at the total ‘return’ for the investment.

So, for example, you may own a mutual fund that pays a 5% cash dividend, and has also increased 5% in ‘market value’ over the course of the year.  In this case, the statement would reflect a 10% return for that investment. On the other hand, if that same mutual fund decreased 5% in market value over the course of the year, the statement would show a zero return for that investment...even though it’s paying a 5% cash flow/dividend.

So, how important is the ‘performance’ figure on a statement? It’s much more important if your portfolio is invested primarily in growth investments rather than income investments. This is because with growth investments you are essentially only earning a return if the investment increases in market value. With income investments, you are earning a return via the income it produces…regardless of whether or not it has increased or decreased in market value.