How To Easily Analyze Your Investment Portfolio For Concentration Risk, Sector Exposure, And Style

Investment Checkup Of Your PortfolioRebalance your portfolio at least twice a year because your positions can change quite drastically as a percentage of your portfolio over time. If you really care about your finances, rebalancing once a quarter is probably even better. Whether you actually make some adjustments to your investment portfolio is a different matter. You might find you’re happy just the way things are based on your risk profile and leave well enough alone.

Just the fact that you’re staying on top of your investments 2-4X a year by checking your position sizes, reading your fund’s quarterly statements, and monitoring your general risk exposure is better than most people. Even if you employ a financial adviser to watch over your money, you should check in to see that your money is allocated properly. One person I knew thought she had 70% of her portfolio in the S&P 500 in 2013. When she finally opened up her year end financial statement she realized she was actually 70% in cash and 30% in bonds the entire time!

So is there an easy way to give your investment portfolio an investment checkup? I’m pleased to say there is.

One of the neat things about working at Personal Capital is getting firsthand updates of all the newest features by the people who create them. Jim Del Favero, Chief Product Officer showed me what he and his team have been up to this year with the rollout of the latest free Investment Checkup features. Here’s a quick tutorial to help you manage your investments better.

The new Investment Checkup features do the following:

1) Analyzes stock concentration: You can now easily see what your largest holdings are and if you have too much of any one position which might threaten your portfolio’s risk profile. Sometimes your winners can really grow in size quickly if you aren’t constantly paying attention. Conversely, many people start ignoring their portfolios when some of their picks do horribly.

2) Analyzes domestic equity sector exposure: You can see whether you are overweight or underweight in any one sector and see how well you are diversified. You can compare your portfolio to the S&P 500 as well as Personal Capital’s Tactical Weighting recommendation, which is based off equal weightings across sectors instead of market cap weightings. Tactical Weighting is also known as “Smart Indexing” according to PC.

3) Analyzes US equity style: See how your portfolio stacks up among large, mid and small cap stocks vs Personal Capital’s Smart Indexing recommendation and the S&P 500. The S&P 500 is market cap weighted while Smart Indexing is equal weighted across sectors. You might have too much or too little small cap or large cap exposure vs. the indices.

Below is a screen shot of what you should see when you log on to your Dashboard to help you access their newest features. Go to the top right and click “Investing” and then click “Investment Checkup”.

Personal Capital Investment Checkup

The Benefits Of A Backdoor Roth IRA

Backdoor Roth IRA - Horseback ridingIs A Backdoor Roth IRA A Good Move?” on Daily Capital is probably the best post on the internet that explains who should do a backdoor Roth IRA, how to do a backdoor Roth IRA, who is allowed to do a backdoor Roth IRA, the risks of a backdoor Roth IRA, and who doesn’t need to do a backdoor Roth IRA. Have a read and I’m sure you’ll agree.

Long time readers know that I’m one of the biggest detractors of the Roth IRA program. The main reality is: most people will make less in retirement than during their working years. Therefore, taxes should be lower, all things being equal. I present many more arguments as to why a Roth IRA is suboptimal.

But after spending some time editing the Daily Capital post, I’ve come around to the idea that for some people, a backdoor Roth IRA is a good move. Here are three main reasons why a backdoor Roth IRA should be considered.

Investing Your Tax Refund For A 1,000% Return

Mauna Kea, HawaiiIn the article, “How To Get Over Your Fear Of Investing” I mention how your risk tolerance decreases the more capital you accumulate. When you were rocking a $100,000 net worth as a 30-year-old, you had no problems investing 30% of your net worth in your employer’s promising stock. But now that you’re 50 and less enthusiastic about working for decades more, investing 30% of your $1 million nest egg doesn’t seem like a good idea.

The tax refund actually provides for a great opportunity to swing for the ROI fences every single year, no matter your age or net worth. Given that the average tax refund is only around $3,000, many people just blow it on material things like shoes, clothing, gadgets, and LED TVs. It’s not necessarily a bad idea to use your “bonus” money to buy something tangible: any of these things can provide solid utility until next year’s refund. Alternatively, going the traditional route of paying down debt or increasing a depleted emergency fund is also fine, just terribly unexciting.

Now if your tax refund was a whopping $100,000, I’m willing to be that your approach to spending it would be substantially different! Some would unwisely go out and spend the money instantly on a luxury automobile; most, however, would probably give considerably more thought to the question of how to deploy such a large sum. Things like paying down a mortgage, investing for retirement, buying a home, putting money away for a child’s education, or helping out a loved one all come to mind with this level of money. But most people will never receive such a large refund, so the point is moot (sorry!). The $100k refund simply provides a mental exercise that highlights how our spending habits shift when dealing with different levels of money.

Although a tax refund often feels like a nice windfall each year, it’s actually been your money all along. And how boring it is to just invest that money (now that you finally have it) in the stock market for a potential 8% historical return. Of course if you’ve got revolving credit card debt with interest rates in the teens or higher, certainly give that a whack. But as a Financial Samurai reader, I’m thinking you guys are savvier than this.

What Your Car Says About Your Investing Style And Money Making Acumen

This is a fun guest post from PK, a software engineer who writes at Don’t Quit Your Day Job…, a site which covers the intersection of personal finance, investing and economics. Follow DQYDJ if you care about the story behind the story.

Quick: what was the fastest production car that General Motors made in 1987?

The Corvette? A common answer – but the performance champion was the lesser known Buick GNX, which lives on today in the Buick Regal. (The Corvette lives on today in, of course, the Corvette)

Cars & Investing: A Universal Language!

So… why cars?

Well, first, I’ll be in fine company; this site has a history of well-reasoned articles about cars, what with the seminal 1/10th rule on car buying or its cousin, the 5% of net worth car buying rule. However, that’s not the full reason.

Like most engineers still in the workforce, I’ve spent a fair amount of time on Slashdot (tagline: “News for nerds, stuff that matters”) over the years. One of the tongue-in-cheek memes of that site (and, really, engineering-focused sites in general) is the venerable car analogy. No matter how complicated the topic, there will always be an argument as to how cars, trucks, traffic, roads, and other self-directed transportation-related items can somehow shine a (head)light on the topic. If the readers on those sites cared about investing, I’m sure you’d already have seen similar analogies put forward.

But, they don’t – and we do.

So, how would you describe the major classes of investors – passive, technical, growth and value – with car analogies? Let me take a shot first, then let’s hear your improvements in the comments!

Ferrari

In Ferris Bueller’s Day Off, Cameron’s Father’s ‘choice’ Ferrari 250GT California was just a replica… (Wikimedia)

 

How To Overcome Your Fear Of Investing In The Stock Market

S&P 500 Historical ChartThis post is relevant for the following people:

* Who distrust the stock market.
* Who know they should take more risk but don’t because they’ve been burned before.
* Who don’t know much about the markets.
* Who are falling behind financially every day the bull market rages on.
* Who have the majority of their assets in cash, CDs, money market and checking accounts. (See CD Investment Alternatives)
* Who want a potentially higher rate of growth on their net worth.
* Who have grown a sizable financial nut and absolutely hate losing money.
* Who have a gambling tendency.

I’ve been investing in the stock markets since 1995 when Charles Schwab had a nascent online brokerage company. My father showed me his account one trading day and I was immediately hooked by all the green and red from various stock movements.

19 years isn’t a particularly long investment resume, but I did spend 13 years in the equities department of two major investment banks. Instead of buying and holding, I was neck deep into the sales and analysis of public companies. I’d meet with senior management, travel overseas to conferences, and visit company factories to kick the tires and make recommendations.

I remember traveling 26 hours to Anhui Province, China one year. My client and I landed at 2am, got to the hotel at 3am, visited the production facilities of Anhui Conch Cement (914 HK) at 9am for two hours and then caught a 2pm flight to Hong Kong to meet five more companies. The whole process of trying to fully understand companies before making an investment was exhausting, but necessary when other people’s money is at stake. Now compare how much research the average stock investor does before buying. Kind of scary.

The stock markets can be absolutely brutal to your net worth if you are not properly diversified. If you planned to retire in 2008-2010 you were absolutely crushed if most of your investments were in stocks. Everything has rebounded five years later, but that means you lost five years of financial freedom with a whole bunch of worrying while you worked through the recovery.