There are more risks than just losing capital. All investment portfolios, when being constructed, need to comprehend and analyze all of the risks that investors face. After 30 years in the business this list below represents the key metrics that matter in analyzing a portfolio:


Rate of Return This is the rate you need to make on your portfolio in order to not lose purchasing power after subtracting your expenses, taxes, and cost of living increase. If your return is not greater than your cost of living increase, you lose purchasing power.


Standard Deviation This statistic measures how much risk you are taking versus your return. The lower the number, the better. Too often this metric is not understood. The higher the number, the more your compounded returns.


Variance Drag Phantom Tax This statistic explains the importance between your standard deviation and historical returns. VDPT is a crucial statistic where the goal is a 0.8 or lower. Anything greater than 1.5 is disastrous.


Sharpe Ratio You want this to be 1 or higher on your entire portfolio. Anything at 0.5 or less is unacceptable.


Probability of Any Loss
in the Next 12 Months
This is the probability that your portfolio will experience any loss during the next 12 months. It should be 15% or less.


Amount of Money at Risk
in the Next 12 Months
Based on historical data, this identifies how much money is at risk.


Upper and Lower Return These two values show the historical range of returns of your portfolio. The goal is to have this range as narrow as possible, thus giving you a higher compounded return.


Correlation to S&P 500 This metric quantifies how your portfolio performed relative to the S&P 500 Index’s performance.