Top 5 Portfolio Checkup Tips

Stipp: So sort of where you expect to have stocks and bonds and in what percentages is a good place to start and doesn't need to be overly complicated.

Benz: It doesn't. I think investors hear investment policy statement and might think, that's something that financial institutions do, it needs to be a multi-page document--it doesn't. It can be very stripped down, just focusing on some of the key things that I just outlined.

Stipp: So speaking of asset allocation, you know we did see some pretty good performance out of stocks and so maybe people's asset allocation is a little different. So your second point would be on checking that asset allocation. So what are your tips there?

Benz: Well, I love our X-ray tool for checking up on your current asset allocation, and the reason I like it so much is that it doesn't just take say an equity fund and lump it all into your equity allocation. It actually drills into that portfolio, and if the fund has cash, for example, it will apportion the cash and the equities accordingly.

So, it's a more sophisticated tool for evaluating asset allocation. I think that's a terrific starting point.

Stipp: And really see where all those underlying holdings are leaving you overall from that sky view.

Benz: Exactly.

Stipp: OK, so moving then to individual holdings, what are some of the things I should think about as I'm looking at my individual mutual funds and other holdings to get a sense of, are things the same, should I think about swapping some in, swapping some out?

Benz: It's certainly hard to ignore performance when you're looking at your portfolio, but I would say to the extent that you can tune it out, that's probably a good plan. And instead focus on what I call fundamental factors.

So these would be things like has the fund had a manager change? Has there been any upheaval at the company level. There have been a lot of mergers in the asset management space. Is there anything that will have a material impact on my fund holding? Expense ratio hikes are another important factor to consider, and we've certainly seen a lot of them in the mutual fund realm over the past year. So that's for funds.

For individual stocks, I would say that you want to go back to the criteria that you personally are using for selecting companies and see whether anything fundamentally has changed in your thesis for those companies.

Stipp: OK, so stock prices can move up and down and the market can move things up and down, but really focus on what's going to, in the longer term, potentially change the performance of some of your holdings is a good place to start.

Benz: Right, because performance obviously has been strongly positive for many stocks, and I think the last thing you want to do is focus on, say a nine-month period, and make decisions on how your holdings have performed based strictly on such a short time frame.

Stipp: Sure. So on the performance point, people definitely are going to be looking at performance even if they shouldn't be too fixated on it. So if I am going to, and I know that I'm going to be looking at performance, what things should I keep in mind and how should I try to assess the performance of my holdings when I'm looking at my portfolio?

Benz: Ideally, you want to look as long-term as you possibly can, and I think a good starting point is to simply look at your portfolio holdings, your asset allocation, versus what say a benchmark portfolio composed of the same asset classes would have performed. So that would be a good starting point.

And then in terms of assessing individual holdings, I would definitely look at five- and 10-year performance versus focusing on the past one-year period.

Stipp: OK, so keep that long-term in mind.

Benz: Right.

Stipp: Last point, sort of looking ahead a little bit to you tax liabilities, if I'm thinking maybe how can I manage my taxes a little bit since I'm in my portfolio anyway, where should I start there?

Benz: Right, and this is a great point because I think investors--in fact, many investors--may have taxable capital gains this year. So, I think that you probably, if you drill into your portfolio, may be able to find some holdings where you do have losses that you can realize to offset future capital gains. So I would take a look.

And this involves digging into your cost basis records, but look at your purchase price versus where the funds and stocks are currently trading. See if you can possible prune some losers and take the losses to offset future capital gains.

Stipp: Well five great tips. Christine, thanks so much for joining me.

Benz: Thank, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.