Monitoring the Characteristics of Your Portfolio
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Monitoring the Characteristics of Your Portfolio
The first step in the portfolio-monitoring process is to take a close look at your portfolio’s characteristics. Are there significant developments that merit your attention?
Things To Know
- Portfolios change on their own, and if you ignore those changes, you could have problems.
- Look for unexpected changes in your portfolio.
Portfolios change
Portfolios aren’t static. They change without us doing anything to them. That’s because market forces will make some investments perform better than others—which means they’ll take up more of our assets. Or fund managers buy and sell securities, and in doing so, they change underlying portfolios of your mutual funds and the look of your overall portfolio.
Ignore these changes and you may end up with a portfolio that’s very different from the one you originally put together. Ignore these changes and you may be taking on more risk than you think. Finally, ignore these changes and you may not meet your goals.
Look for unexpected changes in your portfolio. If you find some, you need to determine how significant these changes are and if they in any way threaten your long-term investment plan or your portfolio’s short-term volatility characteristics.
You can analyze your portfolio with various online tools such as those offered by Morningstar. You’ll find out how your portfolio looks from a series of key vantage points.
Asset allocation
How does this current asset allocation compare to the original asset mix that you established for yourself? If the mix is off-base, it may be time to rebalance.
Style box diversification
How does this style mix compare with your original mix? If things differ dramatically, you might consider rebalancing here, too.
Stock sector
What segments of the stock market is your portfolio most and least exposed to? Is this what you expected? And how does it compare with your original sector mix?
Stock type
You may find that you have a lot of investments that are of the same stock type or in the same stages of their life cycles. That isn’t a bad thing, per se. But having too many aggressive and speculative growth investments can lead to lots of volatility.
World regions
How diverse are your investments around the globe today, and how do these figures compare with the global mix you set up for yourself originally?
Stocks stats
Is your portfolio carrying a high price/earnings ratio, making it more vulnerable to price risk than it may have been when you initially invested?
Top 10 holdings
How much of your assets are in each of your investments? Is this amount significantly different than it was last time you checked in? If so, you may need to rebalance.