Understanding return, CAGR, drawdown, and benchmarks
Investment performance is more than the amount a portfolio gained. Time, the path taken, the size of declines, and the alternative used for comparison all change what a performance number means.
A result should identify its beginning and ending dates, treatment of dividends, benchmark, fees, and whether trades and taxes are included. Backtested, reconstructed, and live results answer different questions and should not be blended into one unlabeled record.
How much did the value change?
Total return combines price change and included investment income over the full period. It does not, by itself, account for how long the result took.
What was the annualized growth rate?
Compound annual growth rate expresses the smoothed yearly rate connecting the starting and ending values. Actual year-to-year returns can be much less even.
How deep was the largest decline?
Maximum drawdown measures the largest percentage fall from a prior peak to a subsequent low. It describes historical downside, not the worst decline that could occur.
What was the relevant alternative?
A benchmark gives the result context. It should cover the same dates and represent a reasonable comparison for the portfolio's market and investment universe.
- Are dividends included in both the model and benchmark returns?
- Do the model and benchmark use the same beginning and ending dates?
- Are the results before or after subscriptions, trading costs, taxes, and other expenses?
- Which portion is backtested, reconstructed, or recorded after publication?
- What happened in weaker years, not only across the full period?
- How long did major declines and recoveries take?
FINRA explains how total and annualized returns differ and recommends comparing similar investments. Its guide to evaluating performance also notes the importance of fees, taxes, inflation, and results across several years.
The evidence page provides backtest curves, annual returns, CAGR, drawdown, and validation work. The profile records show forward-tracked Core, Balanced, and Growth results against SPY, while the audit page documents record timing and artifact history.