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A Portfolio Checkup in 6 Steps

Fri, 18 Jul 2014

In this special midyear presentation, Morningstar's Christine Benz demonstrates how to gauge the viability of your current plan, evaluate positioning, troubleshoot risk factors, and much more.

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Video Transcript

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. I'm here to share with you a session about how to conduct a midyear portfolio checkup. I will run through six steps that you can take when checking up on your own portfolio. But before we get into that, I'd like to talk about what I think are best practices for portfolio checkups in general.

The first point I would make is that it's a mistake to check up on your portfolio too frequently. I think for most investors a quarterly checkup is plenty. If you wanted to be even more hands-off you might think about just checking up on your portfolio semiannually or even maybe just once a year. It's also important if you are conducting a portfolio checkup to be targeted about it. Employ a checklist so you can get in and get out. You don't want the process to take hours or days. It should take just an hour or two at the most. The idea is to be surgical and get it done.

Another best practice for portfolio checkups is to focus on the fundamentals of your portfolio. We have come through a period where both stocks and bonds have performed pretty well. So it's easy to get distracted by the performance of our holdings and by the strength of our portfolios in general. But I think it's very important for investors to anchor their portfolio review process in a review of the fundamentals of their holdings as well as their asset allocations as well as whether their plans are on track.

It's also important if you are conducting a portfolio review to progress from the most important factors to the least important. That way if you run out of time, you will know that you have focused on the factors that are the most predictive of good performance for that portfolio.

And finally if you run through your portfolio-review process and decide that it's time to make changes, it's important to take tax and transaction costs into account before making any changes. For most investors I would say, it makes sense to do any trading within their tax-sheltered accounts where they won't incur any tax costs if they need to make changes. So, start with your IRAs and 401(k)s and see if you can move the needle there in terms of adjusting your portfolio's mix before working with any taxable holdings that you might have.

Let's get right into the six steps for conducting that portfolio review. The first step, the most important part of this process, is to gauge the viability of your plan. See if you are on track toward reaching your goals, and I will share some guidelines for both accumulators, people who are working toward retirement as well as people who are already retired.

The next step is really the meat of the portfolio review process. This is where you review your portfolio's asset allocation and its positioning versus various benchmarks. And I will share some of those benchmarks in the course of this review process.

The next step, and this is something that is important for both accumulators and for retirees, is to check liquid reserves in the portfolio. Make sure that you have adequate cash on hand to meet near-term living expenses or emergency expenses if you're still working.

You will also want to review individual holdings, and I'll share some ways to do that, using tools that are part of Morningstar.com's Premium Membership.

For the timely part of the portfolio review, I'll talk about some current risk factors that should be top-of-mind for investors right now. You want to troubleshoot them as part of your review process.

And finally, and this is a very important part of any portfolio review, it's valuable to conduct a cost audit of your portfolio to make sure that you're not overpaying, if you have actively managed or indexed funds in your portfolio, that you are not paying too much for your total portfolio mix.

Step 1: Gauge Viability of Current Plan 
Let's get right into Step 1, this is making sure that your plan is on track. If you are an accumulator, you want to think about a few different benchmarks to gauge whether your savings program is on track. I recently sat down with Christine Fahlund, she was T. Rowe Price's lead retirement planner for many years. She said that T. Rowe is recommending that pre-retirees save about 15% of their income.

I think that's a reasonable starting point, but it's important to bear in mind that if you are a higher-income earner, you probably want to set aside an even higher percentage of your salary. The reason is that as you become retired, Social Security will provide a lower percentage of your income, so you will need to supplant that with your portfolio.

On Fidelity's website, Fidelity also provides some benchmarks for accumulators to help gauge whether they are on track. Fidelity says that by age 35 you want to make sure that you have set aside at least 1 times your current salary. Once you are at 45, you want to have 3 times your current salary per Fidelity's guidelines, and for people who are at 55, they want to make sure they will have 5 times current salary. Those are good benchmarks but again higher-income people will want to set their targets even higher.

You also want to make sure, because it is midyear, that if you are in a position to max out your contributions to your tax-sheltered account, that you are on pace to do so. So in 2014 people who are under age 50 can save $17,500 in a 401(k). People who are over age 50 can save $23,000. For IRAs, the contribution limits are lower, $5,500 for people under 50 and $6,500 for people who are over age 50. See how you are progressing toward maxing out those contributions.

You can either dollar-cost average, or, if you're doing an IRA, put the money to work in the market as soon as you possibly can. The idea being that over time people who make contributions early in the year tend to end up with larger account balances than those who wait until the very last moment.

Another way to gauge whether you're on track, if you're in accumulation mode, is to use one of the many calculators online. The beauty of these calculators is that they can take into account all of your different account types, and they can also use Monte Carlo analysis to help model out various return scenarios for your portfolio.

A few different tools that I like are T. Rowe Price's Retirement Income Calculator, Fidelity has its Retirement Quick Check tool for a quick back-of-the-envelope-type calculation, and retired investors have told me that they really like Fidelity's Retirement Income Planner when thinking about crafting their retirement plans.

These are all some of the good tools out there on the web. I would say sample a range of different tools to get a range of opinions about whether you're on track with your retirement plan. No matter what tool you use, make sure that it's as holistic as it can possibly be and is taking into account the major factors that would affect your retirement readiness. So you want to make sure that any tool you are using is factoring in inflation and that it's also using reasonable return expectations. Ideally it's using some sort of Monte Carlo Analysis to factor in the randomness of returns over time.

A good tool would also factor in the role of taxes and the tax treatment of your various account types as well as the role of other assets in your retirement plan. So the role of Social Security for example, or if you or your spouse has a pension, the best tools are holistic and take all of those different factors into account.

If you are someone who is getting ready to retire or already retired, you want to think about the sustainability of whatever withdrawal rate you're using in that portfolio. The old rule of thumb, the old guideline for sustainable withdrawal rates is that you can take 4% of your balance in year one of retirement and then gradually inflation-adjust that figure as the years go by.

So an example that I have got here, with an $800,000 portfolio that would mean that you could take $32,000 in year one of retirement and then you're just nudging that number up a little bit to account for inflation. So assuming a 3% inflation rate, you would be able to take about $33,000 in year two of retirement.

It's important to note that this idea of sustainable withdrawal rates has received a lot of scrutiny in recent years. My colleague David Blanchett, who is head of retirement research here at Morningstar, authored a paper where he looked at what he called the 3% rule. And what he suggested was that for people, particularly those with heavy fixed-income and cash balances, they want to be even more conservative than 4% when thinking about their withdrawal rates for their portfolio; that they may want to think in the neighborhood of 3%. So this is all important to bear in mind as you gauge your retirement plan. Keep an eye on your spending rate. Make sure that it passes the sniff test of reasonableness.

Step 2: Evaluate Portfolio Positioning 
In terms of evaluating your portfolio positioning, this is Step 2 of the portfolio-review process. And I would point you to what I think is an invaluable tool for getting your arms around your portfolio positioning, and this is Morningstar's X-Ray function. You can access X-Ray either using our Portfolio Manager tool. You can click on the X-Ray tab within Portfolio Manager, or if you don't have a portfolio saved on Morningstar.com you can enter X-Ray using our Instant X-Ray tool. This is found on the Tools tab of Morningstar.com. You simply plug in your holdings, the tickers, as well as the portfolio values, and you can then see your portfolio's X-Ray.

And it will look something like this. So you can see your portfolio's asset-class exposures as well as its sector exposures relative to the S&P 500, its geographic exposures and so forth.

You want to focus on that asset allocation, that's really the key thing to focus on as you look through X-Ray, and make sure that your asset allocation is on track relative to whatever your target is. At this point, a lot of you might say, "I don't have a target." And to you I would say that you might want to check out a few different tools for benchmarking your asset allocation.

Morningstar's Lifetime Allocation Indexes provide target allocations for investors at various age bands, or you might look to a good target-date fund series geared toward someone in your same age band. You could use either set of tools as a benchmark, but the basic idea here is to make sure that your asset allocation makes sense given where you are at your life stage.

You also want to check your sector and style positioning. In terms of sector exposures, I noted that the X-Ray tool does show you your sector exposures relative to the S&P 500. In terms of style exposures, I'll provide you with some benchmarks on one of the following slides. Same with geographic exposure; I'll give you a couple of benchmarks for gauging the reasonableness of your geographic exposure.

And last but not least, you want to check on individual stock overload. You can use our Stock Intersection tool to do that. The idea is that if you have individual stock holdings or maybe you have like-minded fund managers, there's a good chance that you may be overloaded on a handful of individual stocks, perhaps making inadvertent bets on those companies. So, it's valuable to get in there and take a look at whether you have a very heavy concentration in individual stocks that isn't intentional.

If you go through this process of evaluating your asset allocation and find that you're light on stocks relative to your target, I think it's important to bear in mind that stocks have gone up for the past five years, and they certainly aren't as cheaply valued as they were even a few years ago.

The average price/fair value ratio for the stocks in Morningstar's coverage universe is 1.04 currently. That's a little higher than it has been in the recent past. So, I think that argues that investors who decide that they need to add to their stock exposure, that they should proceed deliberately. And that means, dollar-cost averaging, adding fixed sums at regular intervals until you hit your target in stocks. I think what you don't want to do is add stocks all in one go right now at what in hindsight could be a fairly high valuation point for the market.

Another idea if you've decided that you want to add to your equity exposure because you're light on stocks relative to where you should be is to just make sure that you have some good value-oriented funds in your portfolio. And on the next slide, I will share some of Morningstar's favorite value-oriented fund managers.

If you want to be even more surgical and add individual equity holdings to your portfolio, that's certainly a reasonable thing to do, and I have got some of Morningstar's most highly rated individual stocks on one of the subsequent slides, as well.

Finally, I think it's not an unreasonable time to think about holding a little bit of extra cash aside, especially if you want to be opportunistic, if you think that the market may sell off in the near future and you want to have some dry powder available to you. I don't think you want to go overboard by holding cash, but I don't think it's unreasonable to perhaps hold an extra 5 or 10 percentage points in your portfolio to be opportunistic to put money to work in stocks if they should become cheaper.

I've got a short list of some of Morningstar's most highly rated, value-oriented equity funds, mostly domestic-equity funds here, as well as one foreign-stock holding, Tweedy, Brown Global Value. These are all funds that are Gold or Silver-rated, meaning that our analysts think that they very much check out on a fundamental basis. They generally have low costs, sound investment strategies, and seasoned managers, and hail from firms with good stewardship.

On this slide we've got a short list of companies that our analysts think are attractively valued right now and have other attractive fundamental characteristics. These are companies [with Morningstar Ratings for Stocks of 4 or 5 stars], meaning that our analysts think that they're pretty cheap at current valuations. They also all have wide moats, meaning our analysts think that they have sustainable competitive advantages. And they also have low fair value uncertainty ratings. That means that our analysts think that they can forecast the companies' earnings on a forward-looking basis, with some degree of certainty that gives them more confidence in their ratings.

These are the companies that currently fit through that screen. You can see it's a fairly compact list because our analysts in aggregate think stocks are pretty fairly valued, if not overly valued. But the good thing about this list is that it's a solid cross-section of different industries. At various points in time, all of our highly rated stocks with wide moats might hail from a single industry. A few years ago, health-care stocks, for example, were the most highly rated companies. This is a good cross-section of individual industries, so you can easily build a portfolio that is pretty well-diversified, if you wanted to add to your equity holdings at this point and if you wanted to focus on those companies that do have attractive valuations. This is maybe a list of companies you could consider as a shopping list.

If you're light on bonds, if you've run through the X-Ray process and your portfolio is light on bonds relative to where it should be, again, I would say it makes sense to proceed deliberately. We are at a rare point in the market where both stocks and bonds appear pretty fairly valued, and so it's not like there are any screaming buys out there in the market. I think it does make sense to dollar-cost average into any sort of bond investments, as well. Again, the idea is that you are setting aside fixed sums of money, investing perhaps on a monthly basis until you hit your target allocation in bonds.

I think it also makes sense, if you are adding to fixed-income exposure, to think about focusing on higher-quality bonds, and I'll share some reasons why you might want to focus on high-quality later in the presentation. To avoid taking on too much interest-rate sensitivity, you probably want to focus on the intermediate-term portion of the bond market. You're able to pick up a slightly higher yield than you are able to do with short-term bonds, but you're not taking a lot of interest-rate risk as is the case with long-term bonds.

You might consider some sort of flexible opportunistic fund, a couple of Morningstar's favorites are Dodge & Cox Income, MetWest Total Return Bond, and one not on this slide but a fund that I like quite a bit is Harbor Bond, as well. That's a near clone of PIMCO Total Return.

If you're someone who is getting close to retirement and you find that you're pretty light on bonds relative to where you should be--and I think that this is probably a common predicament for a lot of pre-retirees--you probably want to derisk that portfolio as soon as possible. My advice would be to move that portion of the portfolio that you have earmarked for bonds long term into cash and then dribble that money into bonds over a period of time.

Again, as with stocks, you want to make sure that you are not adding to bonds at what in hindsight could be an inopportune time to do so. You don't want to be buying all your bond allocation at a high point.

In terms of evaluating your portfolio's style positioning, here are a couple of benchmarks you can use. The grid on the left reflects a total stock market index in terms of its Morningstar Style Box exposure. So you can see that the majority of the style box exposure resides in that large-cap row, the top row of the style box, and relatively smaller portions are earmarked for mid- and small caps.

On the right hand side, you can see the price/fair value ratios for the stocks in our coverage universe within each of those style box squares. So you can see based on this slide that our analysts think that the large-value stocks in their coverage universe are the most attractive currently, whereas the mid-cap growth stocks in the coverage universe are the most expensive looking, based on the analysts' bottom-up view of the company's future cash flows and the valuations of those companies.

This is something to keep in mind if you're doing any repositioning within your equity portfolio. Keep in mind that you may want to think about adding to those large-cap value stocks and funds and perhaps consider trimming the mid-cap and growth-oriented holdings. We don't have price to fair values for the small-cap band, in part, because we don't have enough small-cap stocks in our coverage universe to formulate a view about the relative attractiveness of those small caps. But small caps as with mid-caps have enjoyed a pretty big runup over the past few years. So if you have small caps in your portfolio, I think it's reasonable to consider trimming them, as well.

In terms of evaluating your portfolio's geographic positioning, the U.S. is less than half of the globe's market cap. Currently, it's been the case for several years running. So evaluate your portfolio's geographic exposure. I don't think it's unreasonable, if you are a U.S. resident, to have substantial home-country bias in part because the U.S. is a very varied economy with lots of different sector exposures, but it's something to keep in mind particularly if you're a young accumulator. You want to keep in mind the fact that the U.S. is less than half of the globe's market cap. So you want to make sure that you do have a fair amount of diversification overseas.

It's also important to take a look at your portfolio's positioning relative to developed and developing markets. Even though emerging or developing markets get a lot of discussion in the press and certainly we at Morningstar discuss them a fair amount, they're still a fairly small percentage of the globe's market cap, less than 10%. Even though developing markets might be relatively attractive right now, you just want to make sure that you aren't going completely overboard with developing-markets exposure.

Step 3: Check Liquid Reserves
The next step in the portfolio-review process is to check your portfolio's liquid reserves. If you are someone who is retired, I'm an advocate of what's called the bucket strategy for retirement planning, and that means that you are going to set aside a portion of your living expenses in true cash instruments. That way, you don't have to raid your longer-term assets to meet your living expenses. If you're using the bucket system or even if you are not, I think it's reasonable to think about having that baseline worth of living expenses in true cash instruments.

That's six months to roughly two years in truly liquid securities, certificates of deposit, money market funds, et cetera. You don't want to go any higher than two years in my view, in part because there's a big opportunity cost to having too much in cash. So you want to limit that cash exposure in your portfolio, but you definitely want to have those liquid reserves set aside. If you're someone who is still in accumulation mode, you, too, should have liquid reserves. The idea there is that you would be able to meet any emergency expenses that arise whether you have health-care costs or job loss or any unexpected scenario like that that you would have enough cash on hand to tide you through.

I think that the old rule of thumb, the three to six months' worth of living expenses for people who are in accumulation mode as an emergency fund, is still a reasonable benchmark. If you are someone who has reason to believe that you'll have some income disruption, you obviously would want to set that target even higher.

Here, I think you want to hand-tally your cash holdings. X-Ray won't help you because you want to be sure not to count any residual cash holdings that happen to appear in your mutual funds. Those aren't really liquid assets for you, so you don't want to count them as part of your cash tally. But just make sure that you are setting aside a comfortable amount of cash, not too much, but enough to tide you through either near-term living expenses if you're retired or unexpected expenses if you are someone who's still working.

Step 4: Review Individual Holdings 
The next step in the review process is to review your individual holdings. For this part of the process, Morningstar's Premium Membership can be invaluable to you. You can look at Morningstar's Analyst Reports and ratings to help get a sense of whether our analysts still think that your holdings are worth hanging on to.

For mutual funds, if you have them in your portfolio, you want to keep an eye on manager changes, strategy changes, and also whether the funds Analyst Ratings have changed over time. Your once called Gold-rated fund might be Neutral-rated right now. That's not necessarily a reason to sell it, but it is something to keep an eye on.

If you have active funds in your portfolio, you want to keep an eye on how they've performed relative to inexpensive index funds. If they have shown a pronounced trend toward underperforming the index funds, you might be better off with just a cheap index alternative instead.

You also want to keep an eye on how your funds are positioning themselves, particularly, actively managed funds. Your funds may have very large bets on individual stocks or sectors, for example. That might be just fine with you, that might be why you're paying active managers, but it's still important to know what sorts of bets that your managers are making and make sure that you're comfortable with them. If you have individual stocks in your portfolio, it's also great to read the Analyst Reports and check out the Analyst Ratings as well as the price/fair value ratios for your holdings. You want to make sure that most of your holdings aren't extremely overvalued.

Another factor to keep an eye on is the moat trend of a company. If a company that once had a wide moat has now a narrow moat or even no moat, that's potentially a yellow or even a red flag; that could be a reason to revisit that particular holding in your portfolio.

Step 5: Troubleshoot Current Risk Factors
The next step in the portfolio-review process is to take a look at current risk factors that could be lurking in your portfolio. And there are three key ones I would be keeping an eye on at this point in time.

The first one as I have alluded to in previous slides is it's tricky times for bond investors. You want to make sure that you're not taking on too much credit risk in your portfolio or too much interest-rate sensitivity.

Another risk factor that investors should have on their radar is inflation. Inflation has been pretty benign over the past few years, but I think investors shouldn't get too complacent. They should make sure that their portfolios do, in fact, include some insulation against higher prices down the line.

And finally, investors will want to keep an eye on potential overvaluation in small and mid-caps, and I'll share some statistics about why this might be something to keep on your radar.

Let's get into bond investing. One thing that we've seen is that investors have really been embracing high-yield credits over the past year. We've seen $7 billion in new flows going into high-yield bonds. The problem is as high-yield bonds have become more and more popular, their yields have become depressed. We're now at a point where the yield differential between Treasury bonds and high-yield bonds is very, very low; certainly quite low relative to historic norms. It's just about 3.5 percentage points.

Investors who are buying high-yield bonds right now or those who have added them may not have the same cushion that investors may have had when they purchased them a few years back. Back in the financial crisis, for example, the spread between Treasury bonds and high-yield bonds widened way out into the double digits. So you can see that right now we are nowhere near that. Investors in high-yield bonds have little margin for error in my view.

Default rates have been very, very low, so that's a comforting fact. But I think that people who are gravitating to high-yield bonds should bear in mind that yields aren't that high right now. That's one risk factor to bear in mind if you're thinking about positioning your fixed-income portfolio.

But it's also important to note that high-quality bonds carry risks of their own. They tend to be more sensitive to changes in interest rates than lower-quality bonds. And given that bond yields have a lot more room to move up than they do down, I think that that's a risk factor that investors should have on their radars right now.

One stress test that I have been talking about is what's called a duration stress test. And what that means is that you're going to find two data points for your fund. You can find those data points either on Morningstar.com or on your fund company's website. So you're looking for a statistic called duration. That's a measure of interest-rate sensitivity. And you're also looking for the funds SEC, or Securities and Exchange Commission, yield. So find those two numbers. And what you're doing is that you're subtracting the SEC yield from duration, and the amount that you're left over with is an approximation of what you could expect to lose in a one-year period in which interest rates trended up by 1 percentage point.

Let's run through a couple of examples. In the case of Vanguard Total Bond Market, it currently has a duration of 5.6 years. We're going to subtract out its SEC yield of about 2%. We're left with a 3.6% loss, give or take, if interest rates were to go up by 1 percentage point in a one-year period. You can see that for a long-term bond index, the losses would be a lot more severe in that same 1-percentage-point interest-rate change. So the duration on Vanguard Long-Term Bond Index is 14.2 years currently. Subtracting out its yield of 4% leaves us with a 10% loss in that one-year period with a 1% interest-rate change.

That's something to keep in mind. I think it's a good way to take a look at what sorts of losses could be lurking in your bond portfolio. My thought is that if investors have focused their portfolios on high-quality intermediate-term funds, they probably won't have extreme interest-rate sensitivity in their portfolios. In fact, for a few years now, fund managers have been taking duration risk off the table. So it's a rare core fund that does have significant interest-rate risk at this point in time, but it's still helpful to run through this exercise.

Another risk factor that investors should have on their radars is making sure that their portfolios have adequate insulation against inflation. One tangible indicator that investors have become a little ho-hum about the prospect of higher prices is that we've been seeing massive outflows from Treasury Inflation-Protected Securities, or TIPS. We've seen about $26 billion leave TIPS funds over the past year.

And I think part of that looks pretty rational because TIPS are quite interest rate-sensitive, especially the core funds, which tend to behave pretty badly in rising-rate environments. We saw in the summer of 2013, for example, when interest rates went up a bit that TIPS performed very, very badly. So, some of the selling may be due to concerns about rising rates. And the fact is, inflation has been pretty benign. So many investors seem not to recognize the need to have inflation protection in their portfolios.

But we have recently begun to see some signs that inflation has begun ticking up. We've seen higher food prices and higher gas prices recently. So it's important to make sure that your portfolio does indeed have adequate insulation against inflation.

And there are a couple of key ways to do that. TIPS are the most direct source of inflation protection because of the interest-rate sensitivity associated with a lot of the core-type TIPS funds. One fund that I've been recommending is Vanguard Short-Term Inflation-Protected Securities. There is a traditional mutual fund version or an exchange-traded fund version. I like both of them. They both have very low costs and very vanilla strategies without a lot of the interest-rate sensitivity that accompanies the intermediate- and long-term TIPS funds.

Stocks over time tend to give you the best way to outrun inflation. They give you the best chance of earning a return that is substantially higher than inflation. Everyone--retirees, pre-retirees, and accumulators--needs to have equities in their portfolios. Real estate, commodities, and gold in small doses can be decent hedges against inflation.

And finally, bank-loan investments have also been shown to be pretty decent insulators against inflation. The reason is that their interest rates adjust upward to keep pace with the prevailing interest-rate environment, and interest rates are often moving up at the very same time inflation is moving up. But here again, this is a category I would keep to a pretty small percentage of a portfolio, because bank loans carry a fair amount of credit risk. So you want to limit them to, say, 5% or 10% of your fixed-income portfolio.

Another risk factor that investors should have on their radar is potential overvaluation among small- and mid-cap stocks. The median price/fair value for small and mid-caps isn't appreciably higher than is the case for our overall price/fair value for all of the stocks in our coverage universe, but it is a little bit higher.

If you have determined that you need to lighten up on equities, as I noted in an earlier slide, the small and mid-caps in your portfolio, particularly the growth-leaning ones, would be a place to lighten up on. The market has done a little bit of that lightening up for investors. It certainly did so in the early part of this year where we saw small and mid-cap growth stocks behaving quite poorly, but you still may need to do some trimming in this part of your portfolio.

Step 6: Conduct a Cost Audit
The last step in the portfolio-review process is to conduct a cost audit of your portfolio. If you use our X-Ray tool, you can see some basic data about the expenses you're paying for your portfolio. You can see your mutual fund expense ratio that is weighted by your holdings' value within your portfolio, and you can see that alongside the expense ratio of a hypothetical portfolio composed of the average funds with those same categories. So you want your portfolio to be lower than that hypothetical portfolio's expense ratio. You can also get a look at what your portfolio's total costs look like in dollars and cents.

If you look at this number, it will give you a sense of how big a share of your household budget these costs are. You're never writing a check for these costs, but I think it's very important to have a sense of how large they are. And looking at this number will tend to make you more sensitive to what you're paying in overall portfolio costs.

It will underscore the importance of staying attuned to those fund expense ratios because as your portfolio grows larger, these expense ratios can really add up to a significant sum of money. So pay attention to these statistics which you can see in the Fees & Expenses area of our X-Ray tool.

The next step in your portfolio's cost audit is, if you have exchange-traded funds or index funds in your portfolio, make sure you're swinging the best possible deal that you can. We've seen cost wars break out among index-fund and exchange-traded fund providers. So you want to make sure that if you do have these types of products in your portfolio that you're not overpaying for them, that you're shopping around for the lowest possible prices.

Here are the cheapest funds available currently within each of the major asset classes. You can use these figures to benchmark your own holdings and make sure that you're not overpaying.

That concludes our session about how to conduct your own midyear portfolio checkup. I think we have a lot of great tools to help you do that on Morningstar.com. Thanks so much for joining me.

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