All of the investments held by an individual or mutual fund or other entity are referred to as that person or entity's portfolio. These investments can range from securities to cash to real assets held for the purpose of preservation, growth, or income; essentially anything that is part of a long-term financial strategy that is held separate from daily operations and cash flow can be considered part of a portfolio. The gains and losses of all the singular investments held are totaled up to find the overall return of the portfolio. Continue reading...
There are many ways to diversify a portfolio, but all of them center around a strategy of owning different types of asset classes. For equity investors, perhaps the best strategy for diversifying a portfolio is to own companies from different sectors in different style categories, maybe even across the globe. The S&P 500 has ten different sectors, and a very broadly diversified portfolio should have exposure to each one in some capacity. Continue reading...
While we do not doubt that a young advisor can be intelligent and helpful, there is really no substitution for experience and tenure. Generally speaking, it’s a good idea to choose a manager who has experienced various market cycles. Younger advisors who have never helped their clients through a recession may not be as humble, prudent, or knowledgeable as ones who have. If you can find an advisor with over 10 years of experience, we would recommend that over an advisor with only 3, all other things being equal. There are advisors and wealth managers with only a few years under their belts but who have learned a lot in a short time. Continue reading...
There aren’t many easy-to-find tools on the web or elsewhere to help an investor check how well diversified a portfolio is. Tickeron is setting out to change that. With our proprietary Diversification Score® tool, an investor can input each of their portfolio holdings, and our Artificial Intelligence (A.I.) will provide a score indicating how well diversified the portfolio is. An investor generally wants to make sure that they do not have too many assets allocated to one region, style, or sector, and that they have sufficient exposure across asset classes if that is their goal. Continue reading...
There are different methods and theories about rebalancing, and the answer is basically “it depends.” There is no set rule for the frequency of rebalancing your portfolio, and any generic rules that exist do not necessarily apply to or predict the performance of your particular portfolio. If you’re not very familiar with it, rebalancing is the redistribution of gains from the winning areas of your portfolio to the other areas. Continue reading...
You don’t want to overdo it, but it’s important to stay on top of things. Generally speaking, if your portfolio is run by professional investment managers, you should check the performance quarterly; otherwise, you may not give them enough room to do their jobs. If you run your own portfolio, it is entirely up to you how often you check the performance, but be aware that the closer and more short-term your focus gets, the higher the chance you have of losing sight of the bigger picture. Continue reading...
Not diversifying a portfolio sufficiently can mean putting your assets at greater risk of loss. At the same time, less diversification means more risk but also the possibility of a better return. An investor that put all of their assets into Apple Inc. (APPL) five years ago would certainly be much better off than an investor that owned a broadly diversified portfolio over the same time frame. But over time, a less diversified approach can hurt an investor’s chance of achieving the long-term desired result they want for retirement. Continue reading...
There are three major ways to structure a bond portfolio: a ladder strategy, a barbell strategy, and a bullet strategy. A ladder strategy is structured by purchasing bonds of varying maturity dates, all at the same time. This means there will be several opportunities to make decisions at different dates in the future, so the owner of this portfolio keeps his or her options open to some extent, and has some liquidity over the course of the duration. A ladder might be used when rates are expected to stay about the same. Continue reading...
The ladder provides the bondholder with a degree of freedom and some liquidity to take part in possibly improved interest rates in the future. The ladder strategy distributes your funds uniformly among bonds with various durations. For example, if you have $10,000, you buy one bond with a duration of one year, one bond with a duration of two years, etc. If the interest rates go up when the shorter-duration bonds expire, you will be able to reinvest this money with a higher coupon rate (of course, keep in mind that your longer-duration bonds would have fallen in price). Continue reading...
A barbell strategy avoids intermediate-term bonds and equally invests in very short term and very long term durations. The barbell strategy divides a sum, for instance $10,000, equally among bonds with short durations and bonds with long durations. If the interest rates will go up sharply, the proceeds from your short-duration bonds will be reinvested into new bonds with much higher coupons. If the interest rates drop sharply, the proceeds from the bonds with shorter durations will be reinvested at a much lower coupon, but on the other hand, your long-duration bonds will rise sharply in price. Continue reading...
You can get substantial diversification through mutual funds and ETFs, but it is good to have increasing amounts of diversification the larger a portfolio is. Here are some general guidelines: If your portfolio is less than $50,000, probably 4-5 Mutual Funds will suffice. If your portfolio is from $50,000-$100,000, you might consider adding a few more exotic Mutual Funds or buying a couple of ETFs. Continue reading...
Upgrades and downgrades can be useful but they may not be the most current form of trading information. The problem with upgrades or downgrades is that they rely on the events which already happened; in most cases, the information is already built into the price of the stock. Very often, after a company reports bad results, analysts will downgrade that company — how smart they are! Of course, we all wish that they would do it before the results had been reported. Still, if a majority of analysts downgrade the stock, it might be prudent to seriously consider selling it. Continue reading...
Arriving at the appropriate asset allocation is not very easy to do by guesswork, so we’re here to help. There is no such thing as a mix of assets that is right for everyone. It depends on your age, employment situation, the size of your investment portfolio, your objectives, time horizon, risk tolerance, income requirement from your investment portfolio, tax bracket, and many other factors. Programs and algorithms can help you significantly when you plug some of these variables in, but it is still wise to apply some scrutiny and a human touch. Continue reading...
While a client should be involved in communication efforts as well, it’s really the advisor that should be reaching out with information and scheduling appointments at least once a year. You should definitely discuss your investment portfolio with your Financial Advisor at least annually. Even if nothing has changed, it’s important to keep communication lines open. On the other hand, doing that more than once a quarter without a pressing need to do so might lead you to make poor decisions based on emotions and shortsightedness, rather than on investment discipline. Continue reading...
Diversification is the age-old strategy of owning securities with different risk attributes to mitigate total risk in a portfolio. The opposite of diversification is creating a highly concentrated investment portfolio, where the investor may only own a handful of stocks or just one or two stocks. The potential reward/risk of loss is much higher than a portfolio with securities diversified across a sector, style, and region. Continue reading...
It’s good to have the opinion of advisors who are knowledgeable in various areas of your planning and portfolio, but for most portfolios this can be reasonably accomplished with one advisor. It’s a good idea to have one Financial Advisor who oversees all of your assets, and if the individual parts of your portfolio are of significant size, you might consider having a specialist in those fields to oversee them. Continue reading...
Investment analysis is the practice of evaluating assets or securities in terms of value, risk and return, as well as correlation with other assets. It is to determine their possible place within various strategies and portfolios. Some analysis will be done seeking the best option for specific asset classes, some analysis will focus on the best overall portfolio for a given situation. Analysis is done using quantitative metrics and indicators, some of which can be considered fundamental analysis tools and some of which are technical analysis tools. Continue reading...
You should give your portfolio some deep thought and keep it in the back of your mind throughout your day-to-day, up to a point. Some investors become somewhat obsessive about their portfolio, and it can cause them to lose focus at their own job, to make impulsive and irrational decisions, and to possibly over-trade. Many other investors need a more consistent system to keep up with it. With some good software on your side, or an advisor giving you updates, you should be able to keep up with what’s important without becoming too involved. The average investor, left to their own devices, will tend to make decisions based on emotion, and will likely underperform the market significantly. Continue reading...
Asset allocation tools and Monte Carlo simulators are available through broker-dealers and online services. You may wish to construct your own asset allocation, but there are asset allocation programs available which can take a lot of the uncertainty out of the process. The most famous method for analyzing and testing an allocation involves the so-called Monte Carlo simulation. This simulator helps you determine what would have happened with your portfolio if you were invested according to a particular mix of assets. Three main parameters you should consider for each asset class are: the asset’s historical performance, its volatility, and its correlation to other asset classes. Continue reading...
The answer to this question will depend on the preferences and circumstances of each individual. As your assets grow and your financial picture becomes more complex (with unclear tax implications, and interdependent asset classes), then the answer is more likely to be yes. For those investors with a more modest-size portfolio, it may not be necessary. Financial modeling tools and market research publications are widely available, and while they are not one-size-fits-all answers, they can serve investors quite well when used wisely. Investors who choose not to consult an advisor must be willing to educate themselves. Continue reading...