How do I analyze my portfolio?

[zetta]

One of my New Year's resolutions is to become more proactive in managing my investments. I want to start reviewing my portfolio quarterly, and making adjustments at least once a year. What sorts of things should I look at during these quarterly reviews?

[disneysteve]

A few things you should be doing:

Check how your current holdings match up with your intended asset allocation. Over time, due to investment performance, your percentages will shift and need to be rebalanced.

Check your holdings using the Morningstar Portfolio x-ray feature. That will show your allocation and let you see if you have a lot of overlap.

Check the returns on your funds and see how they compare to their peers. Also look at their expense ratios. If performance is sub-par or expenses are much above others, consider switching.

[kv968]

One of my New Year's resolutions is to become more proactive in managing my investments. I want to start reviewing my portfolio quarterly, and making adjustments at least once a year. What sorts of things should I look at during these quarterly reviews?

Assuming you have an asset allocation set up, and if not set one up, I would watch that you don't stray far from that. Just keep track of the percentages you have allotted to each sector/class (ie. large-cap, small-cap, int'l, bonds, etc...) and make sure they don't diverge too far from your original plan. If they do, rebalance accordingly. You can do this either every quarter (although I think that might be too much) or on a percentage basis. For example, if you want 20% allocated to int'l stocks but since they've done well it might be up to 30% of your portfolio. In that instance you may want to take 10% out of int'l and into something that's lagging. Basic rebalancing is all it is.

Another thing to keep track of is how are the funds doing in comparison to their relative benchmark. This is something that shouldn't be taken too seriously with a quarterly check since funds aren't always going to do better or mirror their benchmark in such a short time frame but in general you don't want them to lag too much for too long. The main point with this is making sure you use the correct benchmark when comparing the fund. Some people compare a large-cap domestic stock fund to the MSCI EAFE index (which is an int'l index) and wonder why their fund is lagging. You have to use the proper benchmark in order to get a true picture of how the fund is performing.

[tripods68]

I would ask, how long you plan to work, and what age? This is the most overlook questions, that should be answer. Only you can answer this honestly.

If your outlook is beyond 30 years, I highly recommend Large Cap Index Fund (like Vanguard Total Market Index Fund) or other Index Fund with mix 65%to 80% invested in stocks and 15% bonds. One thing to note, no fund manager can beat long term index fund. It's something to think about.

[Fern]

This is all good advice.

I would add that signing up for automatic rebalancing is a very good idea. Auto rebalancing forces you to do exactly what you should be doing: selling high and buying low.

Say you have a 60/40 split between stocks and bonds, and your stocks do so well that you end up with a 70/30 split. By taking the surplus 10% in your stock funds and putting them into your bond funds, you are effectively selling high (in the stock funds) and buying at a low price (in the bond funds).