2013 was a great year for most investors, but that makes a new challenge for 2014 — changes to your portfolio that you probably don’t even know about! We’ve talked before about how asset allocation is important for investors, but now that is true more than ever.
Why? Because last year saw huge gains in the market — but I guarantee you that not everything in your portfolio rose evenly. As a result, you’re probably not properly allocated for the market this year.
Investigating My Portfolio
Let’s take my portfolio for example. Here’s my target asset allocation and what my portfolio was at the beginning of 2013:
- 35% U.S. large-cap stocks
- 15% U.S. small-cap stocks
- 25% international stocks
- 5% REITs and real estate
- 10% global bonds
- 10% short-term bonds/cash/floating rate funds
So, what happened in 2013? U.S. large-cap stocks took off running, and skewed my portfolio allocation. Plus, I had some huge individual winners in this segment, so it really skewed everything. Also, I sold off a lot of my bonds early in 2013 in anticipation of rising interest rates, which was a huge factor in avoiding losses as well.
Here’s what my portfolio looks like today:
- 51% U.S. large-cap stocks
- 16% U.S. small-cap stocks
- 22% international stocks
- 4% REIT
- 1% global bonds
- 3% U.S. bonds
- 3% cash
How to Know What’s in Your Portfolio
It can be hard to know what’s in your portfolio because you need to look at your entire portfolio holistically. The trouble that people get themselves into is that they look at each account individually rather than looking at their total portfolio. The reason? It’s tough.
Most brokers put together the asset allocation for each account individually on the monthly statement, or have it readily accessible online. But one account doesn’t matter. You need to look at all of your accounts together — IRA, 401(k), brokerage, real estate holdings, and more. That’s the best way to get a true picture of what’s in your portfolio.
The easiest way to do this (and it’s what I do), is to use free software like Personal Capital. In your Personal Capital dashboard, you simply click on Investments -> Allocation and it will show you how your portfolio breaks down as a whole. This is the easiest way to know what’s in your portfolio.
If you don’t want to use Personal Capital, you can make an Excel spreadsheet and chart it all out, but using Personal Capital is so much easier and convenient (and it costs the same).
Where to Go from Here — Rebalancing
Now that you know what’s in your portfolio, it’s time to rebalance. You should sell some of your winners and buy some of your under-allocated assets. So, in my case, I’m selling some of the U.S. large-cap stocks that did very well last year and buying more bonds. A word of caution is that bonds still are a scary investment as rates rise, so I’m focusing on global bonds and short-term bonds.
Do you know what’s in your portfolio? Have you rebalanced since the huge run-up last year?