For money managers (and for our personal investments), rate of return is the most important number that is expressed in percentage terms. But how do we calculate it? Do we use the simple and intuitive total rate of return formula? Not so fast… A distinction without a difference In the absence of intraperiod external cash flows, …
Many times we use the terms return and yield interchangeably, and that may be because both concepts describe investment performance. But they are not the same. The difference is this simple: return is backward-looking, yield is forward-looking. Return Return is a measure of earnings and gains/losses achieved on an investment over a time period in …
Most corporate investors use benchmarks to express their desired asset allocation, to guide their asset managers’ portfolio construction process and, on an ex-post basis, to measure their performance. Well known indices such as the S&P 500 or the Barclays U.S. Aggregate are generally used as benchmarks. In BS (balance sheet) fixed income investing, the most …
I’m going to give you a rule of thumb for estimating portfolio yield after rebalancing (a.k.a., liquidating) your bond investment portfolio. If you don’t already explicitly know this rule of thumb, I am pretty certain that you have developed the intuition for it. However, here is the value add: teach this rule to your boss, …