On Good Friday, the New York Stock Exchange and Capital Group’s U.S. offices will be closed.

In observance of Good Friday, the New York Stock Exchange and Capital Group’s U.S. offices will be closed on Friday, April 3.

Portfolio Construction 4 ways to rethink portfolio success

Mark Barile Jan Gundersen Greg Smith

January 20, 2026

7 MIN ARTICLE

KEY TAKEAWAYS

  • Return and volatility are common measures of portfolio success. There are other success metrics to keep in mind based on client goals.
  • Success metrics should change over time, as an investor’s objectives evolve from building wealth to preserving wealth.
  • This article shares practical asset allocation ideas, using success metrics and examples from the Capital Group Portfolio Consulting and Analytics team.

Many investors and advisors look at return and volatility versus a benchmark when evaluating the success of their portfolios. In general, common practice across the industry tends to follow this traditional approach to portfolio construction: Optimize the asset allocation to maximize expected return for a given level of risk. But return and standard deviation aren’t the only ways to measure portfolio success. Here are four ideas for assessing whether portfolios are on track to meet different longer term goals:

1. Tailor success metrics to long-term client goals

 

Success metrics should change over time, just like goals can vary depending on an investor's aspirations, financial situation, risk tolerance and time horizon. Common investor goals and desired outcomes tied to major life stages can include building, spending or preserving wealth. For each of these goals, what ongoing success looks like can vary.

Investor goals change over time

Investors who want to build wealth have a desired outcome of long-term growth of capital. Those who want to spend wealth have a desired outcome of long-term growth of capital and income. Investors who want to preserve wealth have a desired outcome of current income and capital preservation.

Source: Capital Group

“Capital Group has moved beyond excess return as the sole success metric by adopting a multi-objective optimization framework. This shift ensures portfolios are measured not just by returns, but by their ability to deliver outcomes aligned with investors’ evolving needs,” says Mark Barile, manager of the Capital Group Portfolio Consulting and Analytics team.

 

For example, an investor pursuing income and capital preservation would care about more than returns and volatility. They would also want their portfolio to provide yield (income) and a degree of downside resilience during market declines.

 

Depending on a client’s goals as well as their concerns, a variety of factors can be measured: return, risk-adjusted return, volatility, yield and drawdown. 

Each key category has specific metrics to measure it. The primary metric that captures return is total average annual return, both rolling and trailing. Return can also be measured with upside capture ratio. The primary metric to measure risk-adjusted return is the Sharpe ratio. Volatility is primarily measured using standard deviation, but can also be measured using beta. Yield is primarily measured using 12-month distribution yield, and can also be captured with yield to maturity and equity dividend yield. Drawdown is primarily measured using maximum absolute return drawdown since inception, and can also be measured with downside capture.

Source: Capital Group. Standard deviation is a common measure of absolute volatility that tells how returns over time have varied from the mean. Sharpe ratios use standard deviation and return in excess of the risk-free rate to determine reward per unit of risk. Maximum drawdown is the maximum loss from the highest point to the lowest point of portfolio returns before a new high point is reached. Upside/downside capture ratio measures how well a fund did relative to a market index during periods when the index rose/fell.

How do you know which metrics to apply and when? Barile, whose team reviews portfolios submitted by thousands of advisors each year, suggests applying a framework to help match success metrics and asset allocation examples to goals as they evolve over time. 

A sample portfolio with a goal of building wealth and a desired outcome of long-term growth of capital has an allocation of approximately 90% equity and 10% fixed income, similar to the American Funds Moderate Growth Model Portfolio. Success metrics include return and standard deviation. A sample portfolio with a goal of spending wealth and a desired outcome of long-term growth of capital and income has an allocation of approximately 65% equity and 35% fixed income, similar to the American Funds Moderate Growth and Income Model Portfolio. Success metrics include Sharpe ratio, standard deviation and yield. A sample portfolio with a goal of preserving wealth and a desired outcome of current income and capital preservation has an allocation of approximately 50% equity and 50% fixed income, similar to the American Funds Conservative Growth and Income Model Portfolio. Success metrics include yield, maximum drawdown and standard deviation.

Source: Capital Group

“This is the approach we use when building and monitoring the success of American Funds Model Portfolios,” says head of Wealth Solutions Jan Gundersen. “For us, success is defined by whether we meet our clients’ objectives over the long term,” Gundersen adds.

 

The framework is both durable and flexible enough to accommodate a wide range of client preferences, says Barile. “Advisors can partner with our team to customize these success metrics to their specific goals.”  

2. Translate success metrics to target asset allocations

 

How assets are allocated can also impact what success in a portfolio might look like. Consider a couple 15 years away from retirement with college-age children and aging parents. They need to build wealth to fund their retirement, college and long-term care expenses for their parents. But they also want to avoid taking on too much risk, given that they are only 15 years away from retiring. A 65% equity/35% fixed income portfolio might be an appropriate allocation for the couple’s needs.

 

For this portfolio, standard deviation (volatility) would be an important success metric given the couple’s desire to grow assets with moderate risk. Although absolute returns may be important, arguably the more important metric is risk-adjusted returns to help protect their retirement nest egg. Risk-adjusted return can be measured in multiple ways, such as using the Sharpe ratio, which measures return per unit of risk taken.

 

On the other hand, an investor who wants to preserve wealth and who needs more income might want a more conservative 50/50 portfolio. In this case, success metrics would prioritize yield and maximum drawdown based on the investor’s need for income and a measure of downside protection.

 

When translating this framework to actual investments, it can be helpful to start with target asset class allocations based on goals, according to senior portfolio consultant Greg Smith. “For example, an income objective might merit a greater allocation to dividend-paying stocks and higher yielding bonds,” Smith says.

Examples of advisor portfolios built to meet different goals

Here’s an example of how Smith applied the success metrics framework to sample client portfolios with 65/35 and 50/50 allocations as well as a more growth-oriented portfolio.

The 90/10 sample portfolio has an asset mix of 90% equity, 9% fixed income and 1% cash and equivalents. The investor goal is moderate growth and success metrics include return and standard deviation. The two major differences in target allocations are more non-U.S. equity and small- and mid-cap stocks, and a primary focus on growth with some dividend exposure. For fixed income, it has modest core/core plus allocations. The 65/35 sample portfolio has an asset mix of 65% equity, 34% fixed income and 1% cash and equivalents. The investor goal is moderate growth and income, and success metrics include the Sharpe ratio, standard deviation and yield. The major differences in target allocations are less small- and mid-cap stocks/non-U.S. equity and a greater emphasis on value/blend equity, along with dividends for potential downside resilience. Its fixed income allocations are in multisector, core and core plus. The 50/50 sample portfolio has an asset mix of 50% equity, 49% fixed income and 1% cash and equivalents. The investor goal is conservative growth and income and the success metrics include yield, max drawdown and standard deviation. The major differences in target allocations are no small- and mid-cap, little exposure to non-U.S. equity or growth stocks, and a focus on blend, value and dividends. Its fixed income allocation has a greater emphasis on short-term funds.

Source: Capital Group. Cash and equivalents includes short-term securities, accrued income and other assets less liabilities. It may also include investments in money market or similar funds managed by the investment adviser or its affiliates that are not offered to the public.

These portfolios include client preferences for certain passive (index-tracking) and factor-based allocations as well as active funds. Factor-based investing builds allocations on specific drivers of risk and return, including factors such as quality, low volatility, style and momentum, rather than traditional asset class categories. For example, the quality factor focuses on a company’s strength and stability, using metrics such as profitability, earnings stability and debt-to-equity ratio. The momentum factor focuses on buying stocks that have had strong results in the past, while selling those that have not fared as well.

Take a closer look at specific asset-class level allocations for these three portfolios

This table represents a deeper dive into the differences between the three sample advisor-built portfolios. The 90/10 portfolio has a mix of active, passive, and factor investment types, with a significantly higher allocation of growth category equity and no multi-asset funds. It is invested in categories like foreign large blend and global growth that the other sample portfolios do not hold, and its only fixed income investment is intermediate core. The 65/35 portfolio has a more even mix of active and factor type investments, with no passive types. The bulk of its equity is in the growth-and-income category, although it still holds some growth, and it holds a relatively even spread across fixed income categories. The 50/50 portfolio has significantly more active than factor investments with no passive type, and no growth equity. Its growth-and-income equity is spread evenly across categories, and its fixed income has a heavier focus on multi-sector, intermediate core, and intermediate core plus holdings, in addition to short-term bonds.

Sources: Capital Group Portfolio Consulting and Analytics team. All categories are based on Morningstar categories except Equity Income, Global Dividend, Large Growth — Concentrated and Large Growth — Diversified, which are custom categories created by the consulting team.

3. Consider dividend payers to support risk-adjusted returns and help reduce volatility

 

For some investors, a successful portfolio can be measured by how it stands up to volatility. In general, dividend-oriented stocks tend to have lower volatility over time versus non-dividend-paying equities. This is because regular dividend payers tend to be more established companies with steadier cash flows. In addition, the dividend payments can cushion the impact of stock price declines. Over the period from December 31, 1989 to December 31, 2024, for example, the standard deviation for global dividend payers was about 15% versus nearly 20% for non-dividend payers. Over that same period, dividend-paying stocks also outpaced those paying no dividends.

Examples of advisor portfolios built to meet different goals

Scatter plot showing dividend-paying stocks have higher returns and lower volatility than non-payers. From December 31, 1989, through December 31, 2024, dividend growers and payers topped performance with annualized returns of 9.4% and 8.8%, respectively, with the lowest volatility at 14.5% and 15%. Non-dividend payers over the same period, however, returned just 4.4% annually with 19.6% volatility.

Sources: Compustat, Worldscope via FactSet, MSCI, Capital Group. Data from 12/31/89 through 12/31/24.

Returns for the global universe are total returns in USD (with gross dividends reinvested) calculated as a weighted average of regional portfolio allocations. The universe from December 1989 to December 2004 consists of an equal-weighted portfolio of the 1,000 largest companies in the S&P BMI Global Index for North America (50% weight), Europe (25%) and Japan (10%); and the 500 largest companies for Emerging Markets (10%) and Pacific ex Japan (5%). Thereafter (from January 2005 to December 31, 2024) the universe consists of an equal-weighted portfolio of the 1,000 largest companies in the MSCI IMI (Investable Market Index) Indices for North America, Europe and Japan; and the 500 largest companies for Emerging Markets and Pacific ex Japan. The global universe is based on an approximate weighting of regions in the MSCI ACWI and do not reflect the changing regional shifts. The universe constituents were rebalanced quarterly, and volatility (standard deviation) is based on monthly returns. All companies composing the global universe are split into dividend payers and non-dividend payers. A company was classified as a “dividend payer” if it paid a dividend during the previous quarter. A company was classified as a “dividend grower” (a subset of payers) if its trailing 12-month dividend per share increased relative to one year earlier. Past results are not predictive of results in future periods. “Dividend cutters” refer to companies that previously paid dividends, but reduced or halted dividends in the previous quarter. “Non-dividend payers” are companies that do not pay dividends to their shareholders.

Investors can increase equity exposure to companies that consistently pay quality dividends to potentially lower volatility. Dividend payers can also help an investor seek better downside capture, which shows how much an investment lost versus the benchmark during market downturns, Smith says.

 

 4. Fine-tune bond allocations for different objectives

 

Investors may want to take a close look at the complexion of their fixed income allocations as success metrics like yield, volatility and maximum drawdown become important in more conservative portfolios. Bonds can play multiple roles, including diversification from equities, preservation and income (yield).

 

“Consider tailoring the mix of fixed income asset classes to portfolio objectives and corresponding success metrics,” Smith says. “Each category of fixed income has different benefits and risks.”

 

For example, while high-yield bonds often show higher correlations to equities, they can also support higher income. Investors seeking a combination of growth and income (65/35 or 50/50 portfolio) may need credit flexibility and greater preservation via higher quality fixed income. Meanwhile, core bonds can serve as a diversifier to equity volatility in a 65/35 portfolio while supplementing higher income-seeking funds in more conservative portfolios.

This table shows examples of how investor goals affect fixed income allocations. A 90% equity/10% fixed income portfolio like the American Funds Moderate Growth Model Portfolio would prioritize return as the main success metric, with modest potential for reduced volatility. Its approach to bond allocations is that core bonds can help provide a buffer against equity volatility. A 65/35 portfolio like the American Funds Moderate Growth and Income Model Portfolio would prioritize the Sharpe ratio, followed by reduced volatility and yield for additional success metrics. Its approach to fixed income is that core bond allocations aim to provide a buffer against equity volatility while core plus and a flexible multisector fund can help access income opportunities. It would also offer some fixed income exposure via balanced funds. A 50/50 portfolio like the American Funds Conservative Growth and Income Model Portfolio would prioritize yield, followed by lower maximum drawdown and reduced volatility for additional success metrics. Its approach to fixed income is that core bonds can help supplement income from higher-yielding strategies and hedge equity volatility, exposure to dedicated high-yield and emerging markets debt funds can provide income with the potential for lower volatility than equities and that a flexible multi-sector income fund pursues income through changing market environments.

Source: Capital Group

Partner with us to customize success metrics

 

For more on portfolio success metrics and how they have influenced the construction of our model portfolios, download our full report, “Think differently about measuring portfolio success.” 

Want to talk about different metrics to evaluate the success of your portfolios?

Sign up for a consultation

Mark Barile is a Senior Manager, Portfolio Consulting and Analytics with 20 years of industry experience as of 12/31/2025. He holds a bachelor's degree in studio art from Trinity University. He also holds the Certified Investment Management Analyst® designation.

Jan Gundersen is head of Wealth Solutions with 27 years of investment industry experience. He holds a master’s degree in oceanography from Texas A&M University and a bachelor’s degree in geology from Colgate University. He also holds the Chartered Financial Analyst® designation.

Greg Smith is a senior portfolio consultant with 20 years of investment industry experience. He holds a bachelor's degree in history and education from Taylor University. He also holds the Certified Financial Planner™ and Certified Investment Management Analyst® designations.

Book a consultation

Sign up

Related content

Time to get more active?
Portfolio makeover: Using active ETFs to reduce risk, save advisors time
Be wary of unintended small- and mid-cap exposure
Think differently about success metrics

Model portfolios are subject to the risks associated with the underlying funds in the model portfolio. Investors should carefully consider investment objectives, risks, fees and expenses of the funds in the model portfolio, which are contained in the fund prospectuses. Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. Smaller company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Investments in mortgage-related securities involve additional risks, such as prepayment risk. The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional securities, such as stocks and bonds. Income from municipal bonds may be subject to state or local income taxes and/or the federal alternative minimum tax. Certain other income, as well as capital gain distributions, may be taxable. A nondiversified fund has the ability to invest a larger percentage of assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor results by a single issuer could adversely affect fund results more than if the fund were invested in a larger number of issuers. See the applicable prospectus for details.



Model portfolios are provided to financial intermediaries who may or may not recommend them to clients. The portfolios consist of an allocation of funds for investors to consider and are not intended to be investment recommendations. The portfolios are asset allocations designed for individuals with different time horizons, investment objectives, and risk profiles. Allocations may change and may not achieve investment objectives. If a cash allocation is not reflected in a model, the intermediary may choose to add one. Capital Group does not have investment discretion or authority over investment allocations in client accounts. Rebalancing approaches may differ depending on where the account is held. Investors should talk to their financial professional for information on other investment alternatives that may be available. In making investment decisions, investors should consider their other assets, income, and investments. Visit capitalgroup.com for current allocations.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only. Use of this website and materials is also subject to approval by your home office.
Capital Client Group, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.