How Should You Measure Investment Success? The KPIs to Define Before Building Your Portfolio
By Karen Schwok
Founder & CEO, Lucid Investments | Former CEO of Pictet Wealth Management Israel
When investors discuss portfolio construction, the conversation usually starts with asset allocation.
How much should be invested in equities? How much in bonds? Should private markets be included? How much should remain in cash?
These are important questions. But another question should come first:
How will we know whether the portfolio is actually doing its job?
Too often, performance measurement is considered only after the portfolio has been built. A client receives a statement showing a return of 6%, 8% or 10% and naturally asks whether that is good.
The percentage alone tells us very little.
A meaningful investment framework should define its key performance indicators before capital is deployed. Otherwise, investors risk judging results against inappropriate benchmarks, ignoring currency effects or overlooking how much risk was taken to achieve the return.
For Israeli families investing globally, this is particularly important.
Start With the Objective
A portfolio should first be designed around what the capital needs to achieve.
For one family, the objective may be long-term capital appreciation. Another may require annual cash flow to fund living expenses. A founder following a liquidity event may need to diversify gradually while retaining significant exposure to the company that created the wealth.
The required return should reflect those objectives, together with expected withdrawals, inflation, fees and tolerance for risk.
This is very different from simply saying, “We would like to earn 8%.”
A return objective without reference to risk or financial needs is not an investment strategy.
Inflation matters as well. A nominal return of 6% may look attractive, but if inflation is running at 4%, the increase in real purchasing power is much smaller.
Choose the Benchmark Before You See the Result
The benchmark is one of the most important and most misunderstood portfolio KPIs.
For international investors, common reference indices include:
MSCI World for developed-market global equities.
MSCI ACWI for global equities including emerging markets.
S&P 500 for US large-cap equities.
Bloomberg Global Aggregate Bond Index for global investment-grade fixed income.
Bloomberg US Aggregate Bond Index for US-dollar investment-grade bonds.
For Israeli allocations, the TA-125 Index may be relevant for local equities, while Israeli government or corporate bond indices can be used for shekel-denominated fixed income.
The benchmark for the overall portfolio should reflect the strategic asset allocation.
A portfolio designed to hold 40% equities and 60% bonds should not be judged simply against the S&P 500. A composite benchmark combining relevant equity and fixed-income indices in similar proportions provides a much more meaningful comparison.
The benchmark should also be measured in the same reporting currency as the portfolio.
Comparing a portfolio in US dollars with a benchmark translated into shekels can produce misleading conclusions because part of the difference may simply reflect exchange-rate movements.
The purpose of a benchmark is not to find the index that makes performance look attractive. It is to represent a reasonable alternative to the strategy agreed at the outset.
Israel Is Moving Toward Greater Performance Transparency
This question is becoming more relevant in Israel.
In August 2026, the Israel Securities Authority published a draft directive proposing that licensed portfolio managers, investment advisers and marketers be allowed to publish past performance publicly, subject to a standardized and controlled methodology. Until now, past performance could generally be presented only under more limited conditions.
Greater transparency is welcome.
But transparency only helps if investors understand what they are looking at.
A return number without information about the benchmark, risk level, fees, currency and calculation methodology can still be misleading.
More performance visibility therefore makes the definition of KPIs even more important, not less.
Make Sure Everyone Is Measuring the Same Return
Two banks can report different returns for the same client over the same period because they may not use the same methodology.
Large deposits and withdrawals are particularly important.
A time-weighted return is designed to measure the performance of the investment strategy while reducing the impact of external cash flows. A money-weighted return incorporates the timing and size of those cash flows and therefore reflects the investor’s actual experience more directly.
Neither is inherently better. They answer different questions.
What matters is consistency.
If a family holds assets with several custodians, performance should be consolidated using one methodology. Otherwise, comparing Bank A with Bank B may tell us more about their calculation conventions than about their actual investment results.
Return Without Risk Is Only Half the Story
Suppose two portfolios both return 8%.
The first fluctuates relatively little. The second experiences sharp swings and at one point loses 20%.
Those are not equivalent outcomes.
Standard deviation is one common measure of volatility. Higher standard deviation generally indicates greater fluctuation in returns.
Maximum drawdown is often more intuitive. It answers a simple question:
How much did the portfolio fall from its previous peak before recovering?
Risk-adjusted measures such as the Sharpe ratio can also help compare how much excess return was generated for each unit of volatility.
For actively managed portfolios, tracking error can be useful as well. It measures how far the portfolio’s returns deviate from its benchmark and helps show how much active risk the manager is actually taking.
The point is not to collect statistics for their own sake. It is to understand whether the return achieved was proportionate to the risk taken.
For Israeli Investors, Currency Can Change the Entire Picture
Currency deserves particular attention for Israeli families whose portfolios are often invested globally while a significant part of their spending and liabilities remains in Israeli shekels.
Consider a simple example.
A US-dollar portfolio gains 10% during the year.
If the US dollar weakens by 8% against the shekel over the same period, the approximate return in shekel terms is:
1.10 × 0.92 − 1 = 1.2%
The portfolio performed well in dollars, but the increase in the family’s wealth measured in shekels was much smaller.
The opposite can also occur. If the portfolio is unchanged in dollar terms while the dollar appreciates by 10% against the shekel, the investor shows an approximately 10% gain in shekel terms despite generating no investment return in dollars.
Neither number is wrong. They answer different questions.
The dollar return tells us how the investment strategy performed in its investment currency. The shekel return tells an Israeli family how the value of that wealth changed relative to its domestic currency.
Portfolio reporting should therefore distinguish between investment performance and currency contribution.
For many internationally oriented Israeli families, monitoring results in both US dollars and Israeli shekels is more informative than forcing one currency to answer every question.
Measure Net Performance, Not Just Gross Performance
Fees can materially affect long-term results.
Management fees, custody charges, fund expenses, transaction costs and foreign-exchange spreads all reduce the return ultimately retained by the investor.
Performance reporting should therefore make clear whether returns are shown gross or net of fees.
It is also important to compare like with like. Comparing a portfolio return after fees with an index quoted before implementation costs will naturally create a difference.
For taxable investors, after-tax outcomes may also differ materially from headline performance. The impact can depend on realization timing, withholding taxes, product structure and the investor’s individual tax situation.
Tax should not replace investment analysis, but it should not be ignored either.
Liquidity, Income and Cash Drag
Not every KPI is about return.
For families relying on the portfolio to finance spending, income generation matters. How much is being produced through interest, coupons and dividends? Is this sufficient for expected withdrawals, or will assets regularly need to be sold?
Liquidity should also be measured.
A family should know what proportion of the portfolio can be accessed within one day, one month or one year.
This is particularly important where private equity, private credit or other illiquid investments are involved.
Cash deserves its own analysis as well.
A portfolio holding 15% in cash may underperform strongly rising markets, but that does not necessarily mean the allocation was wrong. The cash may have been intentionally retained for future commitments, staged deployment or risk management.
The key is to identify the impact rather than simply label it underperformance.
Concentration Can Hide in Plain Sight
Owning 50 securities does not necessarily create diversification.
Several holdings may represent exposure to the same sector, geography, currency or economic factor.
For founders and executives, the analysis should also include company shares and RSUs held outside the managed portfolio.
A diversified investment account does little to reduce overall concentration if most of the family’s net worth remains tied to one company.
This is why portfolio risk should be measured at family level, not account by account.
What Should the Dashboard Actually Show?
A simple KPI dashboard for a globally invested Israeli family might look like this:
KPI
Example
Long-term return objective
7% nominal
Strategic benchmark
40% MSCI World / 50% global investment-grade bonds / 10% Israeli short-duration bonds or cash
Portfolio return
6.8%
Benchmark return
6.2%
Volatility
7.1%
Maximum drawdown
-5.4%
Currency contribution
USD/ILS: -2.3%
Income yield
3.4%
Liquidity within 30 days
82%
Largest concentration
US technology: 14%
Performance basis
Net of agreed management fees
The exact figures and benchmarks will differ from one family to another.
What matters is that the framework is agreed in advance.
At a minimum, the dashboard should answer six questions:
Did the portfolio achieve the return required to meet our objectives?
How did it perform relative to an appropriate benchmark?
How much risk was taken to achieve that return?
How much of the result came from investments and how much from currency movements?
Did the portfolio continue to meet our liquidity and cash-flow requirements?
Are there concentrations that are not obvious when accounts are viewed separately?
Portfolio construction should not begin with products.
It should begin with objectives, constraints and a clear definition of success.
Only then does performance become something we can genuinely evaluate rather than simply observe.