Monitoring the Characteristics of Your Portfolio
The first step in the portfolio-monitoring process is taking a close look at your portfolio's characteristics. Are there significant developments that merit your attention?
Portfolios aren't static. They change without you doing anything to them because market forces will make some investments perform better than others--which means those investments could eventually make up a higher percentage of the portfolio's overall allocation than you originally intended. Fund managers also buy and sell securities, and in doing so, they change the underlying portfolios of the funds and therefore the composition of your overall portfolio.
By ignoring these changes, you may end up with a portfolio that's very different from the one you originally put together, and you may also be taking on more risk than you realize. Ultimately, the result of not monitoring and addressing changes to your portfolio may result in not meeting your investment goals.
This is one of the ways Scottrade Portfolio Review Tool can help you stick to your investing plan – you can use the different analysis tools in Portfolio Review Tool to monitor your portfolio from a series of key vantage points. With our X-Ray tool, you get an in-depth look at the following categories:
How does the current asset allocation compare to the original asset mix you established? If the mix is off-base, it may be time to rebalance.
Investment Style Box Diversification
How does the current style mix compare to your original mix? If things differ dramatically, you might consider rebalancing here, too.
What segments of the stock market is your portfolio most and least exposed to? Is this what you expected? And how does it compare to your desired sector mix?
You may find you have a lot of investments that are of the same stock type; for example, High Yield, Cyclical, Hard Asset, etc. That isn't a bad thing, per se. But it's important to recognize that having too many aggressive and speculative growth investments may lead to lots of volatility and, if you own these types of investments, you'll need to be prepared to handle that increased volatility.
How diverse are your investments around the globe today, and how do these figures compare with the global mix you set up originally?
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 your portfolio? If so, you may need to rebalance to restore your desired diversification.
Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market.