Understanding Investment Performance Claims
By the SEC Office of Investor Education and Advocacy
If you are in the market for an investment, you will likely come across sales and marketing materials that describe an investment’s performance. You should know that performance information can be presented in many different ways. Before making a decision, always make sure you understand how any performance claim is calculated and presented – and whether or not the claim is reliable and applies to your particular circumstances. Here are a few things to consider.
How is performance calculated and presented?
Considering what factors are included in a presentation of performance calculations—and what factors are not—may help you use performance information to make a more informed investment decision
- Fees. You will likely pay certain fees related to your investment. Fees reduce investment returns, so you should always consider what fees are included in the performance calculations. If fees are not included in the performance calculations, information disclosing what fees were excluded and how the excluded fees would have affected performance should be presented.
- Your financial circumstances. Performance is just one of many factors you may want to consider when making an investment decision. A presentation might not take into account factors such as your age, income, other investments, or debt, all of which may affect your financial situation and risk tolerance.
- Market and economic conditions. Performance calculations should be considered in light of material market and economic conditions. For example, while a particular investment return might be above average during a period of economic downturn, that same return could be below average during a period of generally favorable economic conditions.
- Methodology. A presentation should describe its process for calculating performance. Factors such as how a performance calculation accounts for dividends and its assumptions about taxes and market and economic conditions are important to understanding performance calculations.
For more information, visit Investor.gov.
For more information about fees and expenses, see Investor Bulletin: How Fees and Expenses Impact Your Investment Portfolio.
- Written by Guest Blogger
- Category: Blog
- Published: 14 July 2016