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

ANALYZING YOUR INVESTMENT PORTFOLIO

You’ll find the following three screenshots of your investment portfolio using the new Investment Checkup features.

1) Stock Concentration: A snapshot of your individual holdings and feedback on the diversification of your portfolio based on stocks, sector, and style. In this example, RKUS looks a little heavy and is in consideration to be sold down to keep stock weightings the same.

Personal Capital Investment Checkup

2) Domestic Equity Exposure: A snapshot showing your portfolio is very overweight in technology based on our Tactical Weighting (Smart Indexing) suggestions. You can also click on the S&P 500 button to see how your portfolio stacks up to the S&P 500 market cap weighting. Technology is currently overweight based on our Tactical Weighting suggestion.

Personal Capital Investment Checkup

3) US Equity Style: A snapshot of your portfolio’s composition based on style vs. our Tactical Weighting recommendations and the S&P 500 composition. In this example, your portfolio is underweight Mid Cap Core and Small Cap Core and overweight Small Cap Growth and Small Cap Core.

Personal Capital Investment Checkup Chart

POINT OF DEBATE IN SECTOR WEIGHTINGS

There is some discussion on whether comparing a portfolio to the S&P 500 or Personal Capital’s Tactical Weighting methodology is the better approach. I’m biased for the S&P 500 even though it is market cap weighted because that’s what every other domestic fund manager compares their performance too. But take a look at the below chart to see why aligning your portfolio to the S&P 500 might be a mistake.

In 1999, the S&P 500 technology weight grew to 28% because it was the hot sector, much like it is today. The sector then proceeded to decline by 80.5% over the next two years as the bubble burst. An S&P 500 portfolio underperformed an equal sector weighted portfolio as a result. In 2006, Financials held a large 22.5% weighting in the S&P 500. Financials then declined by 79.9% in the subsequent two years due to the housing crisis. The mean reversion phenomena seems to be alive and well, which is why it’s good to not let one sector become too overweight.

The good thing about the new Investment Checkup feature is that you can compare your portfolio(s) to both the S&P 500 or to a Tactical Weighted portfolio.

S&P 500 Market Cap Weighting Dangers

To access the new Investment Checkup features:

1) Sign up for Personal Capital or sign in if you are an existing user.

2) Click the Investing Tab on the top of your dashboard

3) Click Investment Checkup from the drop down men

4) Click STOCKS (right of Allocation, left of Costs options) to get an assessment of all your investment accounts.

5) Click the down arrow in ALL ACCOUNTS to toggle between investment accounts for more specificity.

* New users must first aggregate your investment accounts on the top left hand side of the dashboard by clicking the + button.

If you have any feedback, I’d love to hear it and pass it along to the product team.

Readers, it’s the start 2Q2014. Have you checked on how your investments have done in 1Q2014? What type of investments are you rebalancing more money towards and what type of investments are you selling?

Photo by tpsdave pixaboy, public domain.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

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Comments

  1. Pria says

    Thanks for the update and tutorial Sam! Very helpful for a user like me who likes to take a look at her portfolio every week. I’m kind of addicted to checking :)

    I didn’t notice the Stocks tab option before. Very neat Personal Capital quickly analyzes the portfolio for anything that sticks out.

    1Q was pretty good.. up about 2.3%. I’m bracing for a correction! What are your thoughts on the latest markets?

  2. Tom @ Finance and Flip Flops says

    Out of curiosity, do you have any particular funds (vanguard, if possible) you would recommend to diversify toward international exposure? I was looking at VFSVX , VWIGX and VTRIX. Eventually when I have a little more money I would also like to diversify a bit more into some of vanguard’s REITs.

    • Financial Samurai says

      Those are good looking funds. Is probably just concentrate on domestic exposure and getting that right first if you are still building a sizeable but. The is that one should have a better grasp of what’s going on domestically more than overseas.

    • mysticaltyger says

      I personally don’t think Vanguard’s international funds are all that great. They’re certainly not bad, but I think you could do better. Take a look at Dodge & Cox International Stock or Dodge & Cox Global Stock. Not quite as cheap as Vanguard, but still low expenses and better performance. Expense ratios for those two no-load funds are around .65%.

    • Financial Samurai says

      I think it starts flashing WARNING, WARNING any time someone has more than 70% of one asset as part of their net worth, proceeded by pictures and videos of abject poverty during previous collapses. Beta mode.

      Everybody is a genius in a bull market!

  3. The First Million is the Hardest says

    Cool new features, I’ll have to spend some time playing around with that today.

    If you want to pass along some feedback – For whatever reason PC doesn’t recognize the funds in my 401k and lumps them all as “unclassified”. The ability to manually assign them when that happens would be great to have.

  4. Kristin Wong says

    Personal Capital is one of those things that make me thankful the Internets was invented. The investment checkup tool has definitely helped keep me balanced. It’ll be fun to play with the new stock concentration thingee. Enjoyed the write up, Sam!

    • Financial Samurai says

      No prob Kristin!

      I think people who show an interest in their investments have a much greater chance of accumulating great wealth than those who don’t pay attention.

      It’s crazy how the Internet has provided so much free stuff and access that was once reserved only for the wealthy.

      Let’s this Internet thing lasts!

  5. Done by Forty says

    Sam, as you know, I had some of the same questions about whether it’s better to try for tactical weighting or to index according to the S&P500. It’s a hard question to answer, but Personal Capital does have some convincing data illustrating the benefits of tactical weighting over the past 20 years.

    I’ll have to try out the Investment Checkup — I’m betting it gives me similar recommendations that my contact at PC did. But it’s never a bad idea to get another data point!

    • Financial Samurai says

      It’s a subjective measure. Who is to say which weighting is best? The conservative has an equal weighting across sectors, or a higher weighting in old industries that pay dividends like telecom and utilities. The more aggressive investor overweights higher growth and higher beta.

      I don’t think one answer fits all.

  6. mysticaltyger says

    I think this is all being made to be overly complicated. Just invest in a Target Retirement date fund or a balanced fund.

    Some of the better balanced funds:

    Vanguard Wellington
    Dodge & Cox Balanced
    T. Rowe Price Capital Appreciation
    Oakmark Equity & Income
    Mairs & Power Balanced

    • Financial Samurai says

      Any interest in writing a post for me on the one-size-fits all proposal you have that everybody should invest in a Target Retirement Date Fund?

      The Personal Capital tool is simple. I’ve just created the tutorial to be step by step so people know what to do.

      The solution of telling everybody to just do this or that is a fun one. The reality is that everybody has their own way of doing things.

      • mysticaltyger says

        Sure, I could write a post about that and why it’s a good idea for most people most of the time. I can also share my personal experiences and research that seems to back up the idea.

        • Financial Samurai says

          Sounds good. Shoot me an e-mail with the post when done. If you can include your background, investment experience, and any other details about your wealth for the reader’s perspective that would be great. Thanks.

  7. Chris says

    I turn off the auto-rebalancing in my 401k since I initially had it on and lost again and again during up markets. Since then I lock in some money, have the largest chunk going into a high interest fund so that I can get into the market more as I see fit.
    I’m still only 50% in the market while the basic cash sits in a fund that earns 7.5% (so far) on average while I’m figuring out when and how much I want to be in.
    It appears that the S&P 500 (which hit an all time high again), is up 2.3% for the year so far which is good, but it was just down slightly only 4 days before this.
    I’m waiting for the 5% drop like you mentioned, although I’ll likely get back in 75%-90% around the end of the 2Q.

  8. Jef Miles says

    Not going to lie first things first, cute picture of the dog :)..

    Personal capital appears great and you have laid out an excellent/detailed post here..

    Are you aware of an Aussie version Sam or anyone?

    • Financial Samurai says

      I’m not mate. I’m sure your banks have some online financial tools to utilize. I know banks like Citibank and BoA which I use do. They just aren’t nearly as good or comprehensive or easy to understand. I’ve tried using them on Citi and the categories are all jumbled.

  9. Jon Maroni says

    We just started utilizing personal capital and as an investment tracking and portfolio tool it kills mint.com. It helps you easily see how much of your portfolio is in the investments you actually want. I’m only re balancing once a year because of the transaction fees associated with doing it in my Roth IRA accounts. My 401k has automatic quarterly re balancing which I of course signed up for, should I be doing quarterly re balancing in my Roth IRA’s? Your thoughts?

    • Financial Samurai says

      Hmmm, I don’t know if I can trust automatic rebalancing. I think it’s good to personally check in once in a while and see things are going according to plan. Life and risk change all the time. I really encourage people to be more on top of their finances. They don’t have to trade or rebalance, but at least take a look and try and understand their goals and fears, etc 2-4 times a year.

      Like right now, we are in a bull market and everybody feels smart. People forget what pain feels like. But those investing in Biotech and internet now are feeling it the first week of April 2014 at least!

  10. Eric says

    I use tools like this about once a quarter. Very cool way to see how I’m doing, what is working, and where I’m exposed to bad risk quickly to make smart future decisions.

    I did a bit of fund re-balancing recently due to PC’s tools.

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