You invest so that your accounts will get the benefit of stock market growth. And your hard work, combined with good performance over time, will hopefully help you achieve the retirement of your dreams. But year after year, you may find yourself looking at how much your accounts have increased and the rate of return you received, and not really know what that means.

Knowing how to evaluate your investment returns can help you better meet your goals. And when assessing your return, you should make sure you account for these three things. 

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1. Understand your asset allocation

How are your accounts invested? You may know how much stock you have compared to bonds, but within those categories, what are your holdings? Do you have a concentrated position in one or two stocks that could lead to big losses? If you hold bonds, are they investment-grade U.S. bonds or do you own high-yield or emerging markets bonds that can be riskier? 

For example, in 2008, high-yield bonds were down 26%, whereas investment-grade U.S. bonds were up 5%. If you unknowingly had a heavy weighting in high-yield bonds, you could've lost more money than you were comfortable with.

This doesn't mean that you shouldn't buy these types of investments, but if you do, understand the risks you're taking and be willing to accept the potential losses, as well as the potential gains.

2. Account for deposits and withdrawals

Deposits into your account and withdrawals out of it matter and should be calculated into your investment return. In a year when the stock market did well and your account didn't keep pace, was it because you took some money out? Or was it truly because of bad performance? In years when you added money, did your portfolio value increase because of market performance or your contributions? 

If you started off with $100,000 and earn 8% in a given year, your account will grow to $108,000. If, instead, you take out $8,000 at the beginning of the year, your account will be reduced to $92,000 and then grow by 8% to $99,360. Even though your account would grow by 8%, your ending account value would be less than what you started with. In this example, remembering a withdrawal that you took might be easy. But the more of them you make, the harder it will be to keep track of how they impact your overall rate of return.

You can solve this problem by calculating your return monthly if you're regularly depositing money or withdrawing it from your account. Distinguishing why your accounts are growing will aid you in determining if your actual performance matches your expectations. And if not, remedy this issue and get back on track. 

3. Choose the right benchmark

What are you comparing your investment returns to? Even if you only own stock, you can't use just any benchmark. An index like the Dow Jones is widely used but very concentrated and only contains 30 stocks of U.S. companies. The Nasdaq is also often used but is mostly composed of technology stocks. In a year where this particular sector grows well, it may seem as if your more diversified stock portfolio is performing badly.

The S&P 500 is one of the most broad-based indexes that you may be familiar with but is made up of large-cap stocks. If you own a lot of small-cap stocks, it isn't the best benchmark for you. Or if you hold a portfolio that's made up of 50% large-cap stocks and 50% bonds, comparing your account performance to the S&P 500 isn't an apples-to-apples event.

Bonds don't typically perform as well as stocks, and if you make this mistake, you may find yourself disappointed with your return. Instead, you'll need to add another index, like the Barclays U.S. Aggregate Bond Index, and blend the rates to see how you fared. 

Investing means more than just putting your money into stocks and bonds. It means doing so in a way that reflects your risk tolerance and is unique to you and your needs. Understanding how you're invested can simplify the process of measuring your results. This can make tracking your overall progress easier and meeting your long-term goals more seamless.