Keeping Tabs on Your Portfolio
Make sure you're looking at more than just performance.
Checking your portfolio can be a harrowing or exuberant experience, depending on the market environment. The third quarter of 2011 was terrible, but stocks have still posted strong gains since early 2009. You might also be satisfied to see that your portfolio has made back some ground after 2008's losses and leave it at that.
However, recent performance isn't all that matters. It's important to take a closer look at your portfolio at least annually to make sure it's in good shape. Below are some questions to consider when assessing your portfolio.
Is Your Asset Allocation Out of Whack?
The most important determinant of how your portfolio behaves is its mix of stocks, bonds, and cash. My colleague Christine Benz recently offered advice for how to assess your asset allocation and rebalance your portfolio. As she mentions, inputting your portfolio on Morningstar.com and using the X-Ray tools can be a useful way to track your investments and help you decide if your portfolio is skewed toward certain asset classes (stocks, bonds, or cash), regions, sectors, or stocks.
Morningstar.com Premium Members can set up e-mail alerts to monitor big portfolio shifts. If you're a Premium Member and have created and saved a portfolio using Portfolio Manager (make sure you have entered accurate share quantities and price data for all holdings), hover over Alerts in the gray bar at the top of the screen and click on "X-Ray." You can set up alerts to track if your portfolio's asset allocation, investment style, or stock-sector exposure fall outside specified ranges. For example, you might want to be alerted if your portfolio's bond stake falls below 40% or if its U.S. stock exposure exceeds 85%.
You can also set up a Stock Intersection alert to let you know if a single stock exceeds a certain percentage of your portfolio. The Stock Intersection tool takes individual stocks and underlying fund holdings into consideration, so if you own shares of Google (GOOG) and the manager of one of your large-growth funds buys a big position and boosts your overall exposure to the stock, you will be notified.
Are You Paying More?
Many mutual funds have seen shareholder redemptions in recent years, which in turn can lead to increases in expense ratios. An expense ratio that has risen just a couple of basis points might not be too much of a concern, but if several of your funds have seen substantial increases in price, it can really add up.
There is an X-Ray alert called Mutual Fund Expense Ratio that notifies you if your portfolio's average expense ratio exceeds a value you have specified. Then you can dig deeper by looking at your individual funds and determining if any of them are pricier than they should be (refer to this article for guidance). There are plenty of good low-cost funds out there, so make sure you're not overpaying.
Did Any of Your Funds Change Managers?
If you regularly read our Analyst Reports or news stories on Morningstar.com, you might find out about a manager change soon after it has happened. However, it's a good idea to occasionally go through your portfolio on a fund-by-fund basis to see if management has been consistent.
Pull up each fund on Morningstar.com, click on the Management tab, and look at the start dates for each manager. If you notice that a fund has a new manager since you last checked, it's a good idea to take a closer look. (My colleague David Kathman discusses manager changes in this article).
A new management team can bring a different strategy to the fund, which might not fit your needs, or else the new manager may not have a track record you can study. For example, after Cory Gilchrist's recent departure from Marsico 21st Century (MXXIX), Brandon Geisler stepped into Gilchrist's shoes on that fund. While Geisler has been a research analyst at the firm for five years, he has no prior track record as a portfolio manager. Thus, analyst Karin Anderson recently suggested that shareholders cut their losses and opt instead for a fund run by a more tested manager.
How Has Long-Term Performance Been?
Don't be short-sighted when it comes to performance. Active funds that are good long-term picks inevitably go through periods of weakness but may go on to enjoy substantial rebounds. Take a look at how your funds have done in different market environments before rushing to judgment. The Charts feature on Morningstar.com is especially useful for this purpose, as described in this article. And remember Jason Zweig's advice, which he shared in this interview: "You're not diversified unless you own something that hurts to own."
A version of this article appeared on April 6, 2010.
Katie Rushkewicz Reichart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.