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Let's learn how to compare your portfolio returns to that of your friends/neighbors

It comes naturally to us, as human beings, to check and know how we are faring against our friends/ relatives/neighbors. And it is absolutely healthy to do so. On the way to compare, we might end up learning something new, to help us reach our journey more efficiently.


But, it is an art, to learn how to compare correctly, and is very important to master it too. You need to make sure you are comparing apples to apples (and not apples to oranges). Let's learn to do that today -


Measurable Traits of your investment portfolio

  • Time Horizon

If you've been investing since 3 years, and your friend is investing since 1 year or 5 years (or any time horizon other than 3 years), returns CANNOT be compared. Even XIRR basis, returns cannot be compared.


Reason - The market might be much cheaper 5 years back (when your friend invested) vs. when you invested 3 years back. And no matter what funds or index you have invested in, his return will always seem higher.


So make sure, the 2 portfolios that are being compared should be have been invested, across the same periods.


  • The Correct Return Metric

Make sure you're NOT comparing absolute return of your friend vs. XIRR of your portfolio. If you don't know what that means, click here Ofcourse the absolute return will always seem higher than XIRR of your portfolio, and you might get disappointed for nothing.


  • Multi-bagger Stock of your Friend vs. Your Investment Portfolio

We all have friends who brag about that one multi-bagger stock, which doubled their money in 6 months. Make sure to compare his ENTIRE investment portfolio return (and not just one stock's return) to your investment portfolio return.



Intangible (or subjective) traits of your investment portfolio

  • Risk Profile

This is not a measurable metric but a very important one. An investor who is fine seeing -20% in his investment portfolio in bad times, is an aggressive investor and in times of bull market, chances are that he will sit on enviable returns.


Take a risk profile test and compare your portfolio returns with only those who have the same risk profile.




If we can help you invest, reach us on -

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1 Comment

Hannah Walters
Hannah Walters
Sep 30

The author does an excellent job sounding the alarm on how careful you must be when comparing returns among different investors. You have to ensure not only an appropriate matching of time horizon and risk profile, but also, comparing the same return metrics to show an apples-to-apples comparison overall. This is the same trap many people tend to fall into by highlighting one lucky stock to show returns instead of looking at performance comprehensively in the overall investment portfolio. If it is for a buy assignment for class or group project, all of these comparisons are a great way to start — by simply comparing apples to apples, for the purposes of fairness.

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