The best strategy for getting the most out of the market over the long haul is to diversify your portfolio and then stick with your plan. Not only will spreading your bets over different asset classes help to protect you on the downside, it can ensure that your portfolio won't completely miss out on a rally in a certain asset class. But every year or so, it makes sense to take a look at your portfolio and do a little gardening, so to speak. After a certain asset class has grown wildly, you may need to cut back and devote more to an out-of-favor category.
Take a look at a few tools on Morningstar.com that can help assess what changes, if any, you should make to your portfolio. You can use any one of them alone, or use them together.
1. Instant X-Ray--See how well your portfolio is diversified among asset classes. Have your allocations shifted away from your original targets? Are you more heavily invested in one asset class than another? X-Ray your portfolio to find out. Then save your Instant X-ray as a portfolio for future tracking and easier use in the tools below.
2. Snapshot View and My View (in Portfolio Manager)--Take a look at your portfolio's vital statistics. Learn how to customize Portfolio Manager to show you data points of your choosing. The next time you want to check your portfolio's weightings or performance, the View you created will have all the pertinent, updated information.
3. Asset Allocator--Helps you gauge whether your current mix of stocks, bonds, and cash will meet your financial goals.
4. Portfolio X-Ray Alerts--Notify you when your portfolio drifts away from those targets.
Snapshot View and My View, Asset Allocator, and Portfolio X-Ray Alerts are part of the Morningstar Portfolio Manager tool. If you are not familiar with Portfolio Manager, you may want to take this quick (three-minute)
tutorial to learn more about the in-depth portfolio
analysis and tracking features, as well as Premium Member benefits of the tool.
Action PlanHere's a step-by-step guide on how to use these four tools to strengthen your portfolio.
1. To pull up Instant X-Ray,
click here.
You can enter your holdings using the ticker symbols, and enter either the dollar values or percentage values. (Your brokerage statement would be useful here if you have it handy.) Then click on the link at the bottom that says "Show Instant X-Ray." You'll see a complete summary of your portfolio's diversification by asset type, stock type, style box, sector, and more.
To see if you're over- or underweighted in a given sector, compare the column labeled Portfolio (% of stocks) in the Stock Sector portion of the page with the column right next to it, labeled S&P 500 (%). If the number in the left column is lower, that means you're underweighted relative to the market.
2. To use the next tool, you will need to pull up your portfolio in Portfolio Manager. If you just entered your holdings for the first time in Instant X-Ray, it's quick and easy to save the information in Portfolio Manager. Just click on the white button at the top of the Instant X-Ray data page that says "Save Instant X-Ray Holdings as a Portfolio." This will bring you to another screen where you can enter a name for your portfolio, such as "Portfolio 1." Choose "Quick Portfolio" and click the button at the bottom of the screen that says "Continue." On the next screen, review your holdings. If everything looks okay, click "Save Portfolio," and you're done!
Or if you already have a portfolio in Portfolio Manager, just go to Portfolio Manager and select
your portfolio from the Portfolios drop-down menu above the data.
You should now be looking at your portfolio using Portfolio Manager's Snapshot View. I find this view very helpful for checking up on my own portfolio. You might also like this view because it tells you the current price of your shares, how much the shares have gained or lost since you purchased them (in both dollar and in percentage terms), and the number of shares you hold. It also tells you the percentage the security takes up in your total portfolio, whether news or an Analyst Report about the stock or fund has been recently published, mutual funds' star ratings, and more.
Maybe you're more interested in seeing return figures, P/E ratios, or expense ratios on this page. Pull the Views drop-down menu to "My View 1" or "My View 2" and click the icon that says "Modify My View" under the Views drop-down menu. You can customize your own views by choosing from more than 100 different data points. Portfolio Manager will remember your customized View, so you can log into Morningstar.com and check it any time.
3. Now click on Asset Allocator--it's the pie-shaped icon in the green bar above your portfolio holdings. Note: Asset Allocator is a feature of our Premium Membership service. To try the service for free for 14 days,
click here.
When you're in Asset Allocator, select the portfolio you wish to analyze from the drop-down menu in the center of the screen. Once you adjust the settings to reflect your own situation, you can see whether your current portfolio stands a good chance of meeting your goals. After the market's strong run last year, chances are your allocation--particularly to the riskiest stocks--has shifted. Even if you were on track a year ago, you may not be now.
Take my portfolio, for example. I have decades before retirement, so I invest primarily in stocks and take on some risk in my 401(k). Two of the funds I own, Turner Midcap Growth and American Funds New World, gained 50% and 43%, respectively, in 2003. The Turner fund invests heavily in the software and hardware sectors, two areas that experienced a big surge in 2003. New World, meanwhile, has benefited from the red-hot run that emerging-markets stocks have had lately.
That's great--right? Sure, but the funds have swelled in relation to my other securities, and now they take up more than 14% of my portfolio each. Egads, that's a lot of risk to take on, especially after both asset classes have been on a strong run. Since I don't know which area of the market will be the next favorite, I would feel more comfortable paring back my allocation to both of these funds to around 10% each.
4. Finally, go to
Portfolio X-Ray Alerts.
(Note: Portfolio X-Ray Alerts is also a feature of our Premium Membership service. To try the service for free for 14 days,
click here.)
Here you can set alerts that warn you whenever your portfolio strays too far from your targets. Once you receive an alert, you'll probably want to go back to Portfolio Allocator to see what changes would put you back in line with your targets.
Learn More: Readings"Portfolio Building and March Madness", by Kunal Kapoor
"Do You Own Enough Asset Classes?", by Emily Hall
"Model Portfolios for Retirees", by Sue Stevens
"Getting Your Portfolio on the Right Track", by Sue Stevens
"Owning a Few Good Stocks", by Carl Sibilski
Diversification/Portfolio Planning article archive
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