If you’re like most people, you have investments scattered across a whole bunch of different accounts – IRAs, 401ks, brokerages, and more. However, every account you own and investment have is part of your portfolio.
As such, you need to manage all your accounts as a whole portfolio, and not a bunch of single accounts. This includes non-portfolio assets like rental properties or other alternative investments.
By considering them all together as a whole portfolio, you can really assess your investing performance and diversification.
The Importance of Diversification
The main reason you need to take charge of your portfolio is to make sure you are properly diversified across asset classes. Diversification allows you to hedge against risk, especially business risks and financial risks.
By investing too heavily in one asset class (say real estate), you open yourself up for vulnerability should something happen to the real estate market. The same is true for other asset types, like stocks and bonds.
That is why you should make sure that your portfolio sticks to an asset allocation that works for your needs. While everyone’s ideal asset allocation is different based on individual factors, it is important to make sure that no single asset class is too large or overweight. The SEC has even put together a Beginners’ Guide to Asset Allocation for investors to follow.
Software Portfolio Solutions
There are several pieces of software that can help you manage a unruly portfolio very easily. The first one is Mint. Mint is an online money management program that allows you to input all your accounts and it updates everything for you automatically. Once you sign up for Mint and your accounts sync, you can go to “All Investments -> Allocation” and see how all your investment accounts are allocated.
Another popular portfolio solution is Quicken. Quicken is much more powerful than Mint when it comes to investing, and breaks down a portfolio’s asset allocation even deeper than Mint.
The great thing about Quicken is that you can setup a Target asset allocation and then see how your portfolio compares to that. It even has a rebalancing tool built in to show you exactly how much over and short you are from your target asset allocation.
Excel Portfolio Solutions
If you don’t want to use a software-based program, you can always rely on traditional Excel to put everything in one place. However, if you’re going to use Excel, it is important that you use a tool like Morningstar’s Portfolio X-Ray Tool to look at your funds when placing them into the appropriate asset class. This tool allows you to see the holdings of each fund, and also allows you to see where your some of your mutual funds or ETFs may overlap into the same asset class.
The great thing about Excel that you can’t do with other programs is that you can break down individual asset classes to see if you are diversified within them. For example, I’m a huge fan of building a diversified bond portfolio if you’re going to invest in bonds. But how do you know if you’re diversified? If you plot it out using Excel, you can get a snapshot of how you’re doing pretty easily.
Do you have any tips to share on taking charge of an unruly portfolio?