Analyze your portfolio

Analyze your portfolio

Once you have a complete view of your portfolio holdings, check these four things:

1. General distribution of assets

What is the percentage of your investments in stocks, bonds and cash? How does this assignment compare to target allocation?

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Advance tip: If you own stocks in Berkshire Hathaway, pay close attention. Although it is a technical stock, it has a large amount of cash and bonds. You might have to manually do some asset allocation calculations if the software you're using isn't smart enough to learn about this.

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2. Systemic risks

If you find that you have 70% stocks and 30% bonds, is that too risky for you? If you find you have 20% cash, 30% bonds, and 50% equity, aren't you risking enough to meet your investment goals?

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3. Total fees

Ideally, you want your investment fee to be as close to zero as possible, and thanks to increased innovation and competition in the investment market, you may be able to achieve this goal. For example, Fidelity's Total Market Index Fund (FSTMX) has an annual expense ratio of 0.09% for its investor-class shares, which requires a minimum investment of $ 2,500 in the fund. The higher your investment fee, the lower your returns, and everything else is equal. Other fees to watch out for include mutual fund buying and selling loads, and commissions for buying and selling stocks and ETFs. For long-term buy and hold investors, loads and commissions may cost less over time than annual expense ratios.

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4. Returns

Are your portfolio revenues meeting your goals? If not, this isn't necessarily a problem: What really matters to you is your long-term average annual return. This is why you want to take a look at the performance of your portfolio investments compared to similar investments. Is your stock market fund tracking which index it is supposed to track? You can search for this on Morningstar, which has defined suitable criteria for various funds and created color-coded graphs to show you how your fund was performing against its benchmark. Another possibility is that your portfolio asset allocation cannot meet your goals. If your goal is to earn an average 8% annual return and your portfolio consists of 80% bonds and 20% stocks, then there is virtually no chance of achieving your goal unless you flip your asset allocation to 80% stocks and 20% bonds.

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Advance tip: If at this point you find that you have an unwieldy number of accounts - you probably have multiple 401 (k) plans with several previous employers - consider merging them. You can transfer your old 401 (k) Balances to an IRA account (conventional or Roth, depending on which 401 (k) you have or whether you are willing to pay taxes to switch to Roth). An IRA key will give you the most control over your fees and investments. Or, if you like your current employer's 401 (k) and your current employer allows you to, you can convert your old 401 (k) balances into your current 401 (k). Note that 401 (k) balances have greater protection against creditors.

Find out what's new

Investment innovation may mean that what you currently have is not the best option for achieving your goals. For example, you might have an index mutual fund that charges a 0.5% expense ratio when you have a nearly identical ETF with a 0.05% expense ratio. Does> you show how good it is to be true? How can you get a nearly identical investment for much less? Unlike some mutual funds, ETFs rarely charge sales or 12b-1 marketing fees. Also, unlike some mutual funds, ETFs are usually passively managed (they track a certain index by investing in all the stocks in that index), and not actively managed by human fund managers who pick winners and losers. Passive management is not only less expensive but tends to yield better returns - partly due to lower fees.

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