The Basics: Monitoring Your Portfolio


The previous post discussed the selection of investments, more specifically mutual funds (you can review my easy to follow infographic here).  Portfolio monitoring can be made easy when you have a process to follow like you do for investment selection.    I have broken down this process into 4 simple steps that you can go through quarterly (please, at least semi-annually):

1)      Check your total portfolio balance and performance.  Look at your statements and find the gains and losses for the time period you are reviewing.    Compare those gains and losses to a market benchmark or blend of benchmarks for the same period; for example, 60% S&P 500 Index 40% BB Barclays US Aggregate Bond Index (keep the benchmark easy!) Take your gain/loss amount on the statement and subtract any fees also listed.  Take that total and divide it by the beginning balance for the period.   Multiply that by 100 and that is your percent net return.  Your benchmark is likely to be quoted as a percent return as well.

 The key to comparing to a benchmark is that the benchmark should rarely if ever, change (so make it broad enough so that you don’t have to change it when you make small changes to your asset allocation from time to time) and it can be considered a target return for your portfolio.   Many online tools will allow you to create a market benchmark or give you a suggestion for one; we will cover this more soon!   If your portfolio is consistently underperforming your benchmark then you need to pinpoint the problem within the portfolio.  Maybe, you have an investment fund that is really doing poorly or maybe your asset allocation contains a poor performing asset class.   You will have to make some decisions about whether you believe the underperformance will continue, and if you decide to not make any changes how long will you let the underperformance continue.   Set these rules before your review and hold true to them in the future.  This will help to keep your emotions out of the decision.

2)      Review your current investments with the selection funnel you used in the infographic.  Do the same reasons you bought the investment in the first place still apply?  If not, know what has changed and begin trying to understand if those changes may negatively impact your returns in the future.  As stated in 1, set rules for yourself so that you know when it is time to sell an underperforming investment.   Some examples may be:

  • Sell after 4 consecutive quarters of underperformance compared to the benchmark. You may decide you only want 2 consecutive  quarters of underperformance (be aware frequent trading increases the fees on your portfolio).
  • Sell if there has been a change in the investment management team or strategy and there has been 3 consecutive quarters of underperformance following that change.
  • Sell if the investment’s total assets have declined for more than 3 quarters (total amount of assets the fund manages is available on the fund’s website).

3)      Make a list of what has positively and negatively impacted your portfolio.  Now you can develop a plan of action of any adjustments that need to be made, how soon you need to make them and what costs you might incur.   Costs can include trading fees or taxes you may owe if you sell an investment.   If you don’t understand these things you should call the custodian (like Schwab or Fidelity) or your financial consultant/broker to help you determine that. At this step remind yourself one of the biggest rules of investing, BUY LOW SELL HIGH!

4)      Rebalance and update your portfolio. If your asset allocation has changed due to market gains, losses or contributions and withdrawals into or out of the portfolio you may need to rebalance.  You can set a rule for this as well; maybe you want to let your top performers run and you set your rule to only rebalance when the allocation is off by +/- 5%, or maybe you would like to keep it as close to the intended asset allocation as possible and you set your rule to rebalance when your allocation is off by +/- 3%.

You should also set a rule for frequency of rebalancing.    You may like to rebalance quarterly, semi-annually or annually. Those with a broader asset allocation are more likely to rebalance only annually because they may take a more “strategic” or longer-term outlook on their allocation. Other investors may be able to include several asset classes and sub-asset class categories in their portfolio and take a shorter-term outlook, or tactical allocation, they decide to rebalance quarterly.  These investors are likely to also have tighter rebalancing rules around how much change they allow in their target allocations; for example, maybe they only allow +/- 2% drift from their target.


All your rules you have set should be incorporated into your checklist in step 3.  Check them off as you go and you will have your plan of action easily determined.   Keep your rules consistent and without emotion or bias towards any particular investment.  Keep this image below available to help you remember your quarterly review steps and to keep your portfolio on track for meeting your goals. Next week I will review types of accounts to open and which custodians you can consider for your accounts. Keep learning, knowledge is key!

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