Mid-Year Investment Portfolio Checkup in 5 Easy Steps

Jun 10, 2014 • Written by Paul Staib | Certified Financial Planner (CFP®), MBA, RICP®

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Investment Portfolio Checkup

The bull market of the past few years continues to plow along despite relatively slow economic Investment Portfolio Checkupnews and ongoing unrest internationally.  If you’re paying attention to the news flow and checking in on your portfolio holdings every day – or worse yet, throughout the day – you might be tempted to trade more than needed.  In turn, you might run up high tax and transaction costs, and you’re also more likely to chase whatever’s been hot recently in the hope that it will continue to outperform.  Not an ideal or strategic way to invest.


A better and certainly lower stress way to operate is to put in place a disciplined process for checking up on your investments – ideally just once or twice a year or every quarter at most.  The foundation of such a hands off portfolio management program is a well articulated investment policy statement that spells out how often you’ll check up on your holdings and what you’ll be looking for when you do.


If you don’t have an investment policy statement but want to conduct an efficient and effective portfolio review, you’ll want to concentrate on four key elements:

  • your asset allocation versus your targets,
  • fundamentals (whether there have been any notable operational changes with your holdings),
  • performance, and
  • taxes


Observe the following five steps as you conduct a review of your portfolio.


1. Check up on your asset mix.

One of the most important determinants of whether your portfolio is positioned to meet your goals is your asset allocation, that is how much you hold in stocks, bonds, and cash.  To help get a precise read on how your portfolio is currently positioned, use a tool such Morningstar’s X-Ray tool.  After entering your portfolio holdings into such a tool, you’ll be able to assess how much you have in each of the major asset classes, which you can then compare with your target allocations.


Once you’ve assessed your portfolio’s asset allocation, turn your attention to how your stock and bond holdings are positioned.  Within X-Ray, you can see stock and bond Morningstar Style Boxes (two nine-square grids) that depict the investment styles of your holdings.  Although you shouldn’t expect to see an even distribution of holdings in each of the nine squares, you do want to take note if the majority of your holdings are concentrated in only a few regions of the style box.


Instant X-Ray also shows you how your stock holdings are dispersed across various market sectors as well as how that positioning compares with the S&P 500 Index’s sector weightings.  As with style-box positioning, you shouldn’t get too concerned about some divergences, but you do want to take note of very big bets – sectors where your weighting is more than twice that of the index, for example.


Finally, you’ll want to assess whether your portfolio is disproportionately skewed toward a few individual stock holdings.  The x-ray tool is a good way to tell whether you have concentrated positions of stock holdings within your portfolio.  As a general rule of thumb, an individual company stock should take up less than 10% of your total holdings.


2. Review the fundamentals.

Once you’ve checked out your aggregate portfolio’s positioning, it’s time to conduct a quick checkup on each of your individual holdings.  Morningstar’s Analyst Reports are a quick and easy way to get a handle on the key issues at most prominent mutual funds, exchange-traded funds, and publicly traded companies.  If you’d like to conduct your own research on your holdings, you’ll need to drill down into the data.  For funds, take note of any manager changes, strategy alterations, or upheaval at the fund-company level. As you assess individual stocks, take note of price multiples and profitability trends.


3. Examine performance.

It’s a big mistake to focus too much attention on short-term performance, but your quarterly or semiannual portfolio review should include a quick assessment of which of your holdings are providing the biggest boost to or drag on your portfolio’s overall return.  It’s fine to glance at year to date performance, but you should focus most of your attention on the longer-term numbers, examining each holding’s return during the past three, five, and ten years relative to that of other offerings within that same category.


Also take note of absolute returns.  Which of your holdings have contributed the most or detracted the most from your portfolio’s bottom line?  Sustained underperformance can be an indication that something’s seriously amiss with one of your holdings.  But assuming that your rationale for buying a stock or fund is still intact, a short-term period of weak returns can also provide you the opportunity to add to that holding on the cheap when you rebalance.


4. Understand the Tax Implications.

Prior to making potential adjustments resulting from your portfolio review, you’ll want to review the potential tax implications on re-balancing.  Within your taxable account, selling investments will result in tax losses or gains, and you’ll want to manage that as best as possible.


5. Plan your next move.

After you’ve reviewed your portfolio’s current status, it’s time to plan your next move.  It’s not likely that you’ll uncover a portfolio problem you need to address right away, but you should make sure to schedule a time to rebalance your portfolio.  Conventional financial-planning wisdom holds that the best time to rebalance is at year-end, with an eye toward harvesting any losses to offset capital gains elsewhere in your portfolio.

Paul Staib | Certified Financial Planner (CFP®), MBA, RICP®

Paul Staib, Certified Financial Planner (CFP®), RICP®, is an independent Flat Fee-Only financial planner. Staib Financial Planning, LLC provides comprehensive financial planning, retirement planning, and investment management services to help clients in all financial situations achieve their personal financial goals. Staib Financial Planning, LLC serves clients as a fiduciary and never earns a commission of any kind. Our offices are located in the south Denver metro area, enabling us to conveniently serve clients in Highlands Ranch, Littleton, Lone Tree, Aurora, Parker, Denver Tech Center, Centennial, Castle Pines and surrounding communities. We also offer our services virtually.

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