In this video, I break down the Sharpe ratio — the most widely used metric for measuring risk-adjusted investment performance. You’ll learn exactly what the Sharpe ratio is, how the formula works (portfolio return, risk-free rate, and standard deviation), and what the numbers actually mean for your investment decisions. I walk through a side-by-side fund comparison with real numbers showing why a 12% return can actually beat a 15% return when you account for risk. I also cover the critical limitations you need to know, including why the Sharpe ratio penalizes all volatility equally and why historical performance doesn’t guarantee future results. Whether you’re comparing mutual funds, evaluating your portfolio, or just want to understand how Wall Street measures performance, this video gives you everything you need to master the Sharpe ratio.
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Chapters
0:00 – Why Raw Returns Can Deceive You
0:39 – What is the Sharpe Ratio?
0:50 – The Sharpe Ratio Formula
1:35 – What’s a Good Sharpe Ratio?
1:59 – Sharpe Ratio Example: Fund A vs Fund B
2:34 – Sharpe Ratio Limitations
3:14 – Key Takeaways
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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.
