Do You View Your Holdings as One Big Pie?

When you're young, keeping track of your investments is usually a pretty straightforward affair. You might have a 401(k) from work and maybe some investments in a taxable account or two. But as you get older, keeping track of your investments often becomes more complex. Retirement account balances get much bigger (hopefully!). Perhaps you get married, combining your assets with those of your spouse. Kids come along, and before you know it you're saving for college, too.

With a growing stable of investing accounts, it can become a challenge to monitor them all while still applying important investing principles such as diversification and tax-efficiency. We recently asked Morningstar.com users on our Portfolio Design/Management discussion board how they monitor their investments and, for purposes of asset allocation, whether they view them as one large pot or as smaller pots organized by goal, tax exposure, or some other characteristic. You can read the full comment string here.

Many posters mentioned using Morningstar's  Portfolio Manager tool to track their investments, while Quicken was another favorite, and some created their own methods using Excel spreadsheets. As for whether users view their holdings as part of a single large portfolio or as a collection of smaller portfolios, responses varied widely. Below you will find a handful of the notable responses.

'Separate Components of the Same Machine'
Many users commented that they look at their investments as one large lump sum and asset allocate accordingly. In some cases, they then subdivide holdings based on specific criteria.

"I monitor our portfolio collectively using Morningstar's Portfolio Manager," said DennyF. "This portfolio includes assets in a 457 account, two Roth IRA accounts, U.S. savings bonds, taxable funds, as well as money market and certificate of deposit accounts. I try to keep my analysis simple as I'm anything but a sophisticated investor. We're both retired. So nearly all adjustments to our investments are to remain within plus/minus 5% of predetermined asset allocations." 

DennisR said he views all his investments as "separate components of the same machine," but added, "I break down the different parts of my entire portfolio based on my time frame. In other words, I plan to tap my taxable account first, my SEP IRA second, and my Roth last. So the investments in each 'shell' are progressively more aggressive based on the order I plan on using the funds."

Then there was bubbygator, who didn't mince words: "The purpose of my investments is to make money. What I might do with the money is an entirely different matter. I manage all my accounts collectively toward the single goal of making money."

Keeping an Eye on Taxes
One of the most frequently mentioned methods of dividing up investments was by tax exposure.

"I monitor all our investments as a whole, then I look at two subgroups: the taxable and tax-sheltered," wrote causalresearch. "I try to keep the more tax-efficient investments in the taxable accounts while still maintaining the overall allocations. I also monitor each separate brokerage account, trying to even out mine and my spouse's, mostly for estate-planning purposes. This has become much easier after I decided to reduce all our accounts to just a few mutual funds."

BMWLover also wrote about dividing holdings into taxable and tax-sheltered accounts, with an eye toward potential asset-allocation problems. "In the retirement accounts I will combine the holdings of all of our accounts in order to monitor the allocation," BMWLover wrote. "I will also look at the weighting of the individual securities that we hold, knowing that the mutual funds that our 401(k)s are invested in may have some overlap. If any of the classes or individual securities carry too heavy a weighting from my targets I will lighten up on them, or if the weighting is too light I will look to make further investments either in an existing holding or another that meets our investing goals."     

Some users described steps they've taken to make tracking their holdings easier. "I monitor my portfolio as one piece that is held in two accounts. One account is taxable, and the other is a Roth IRA," jomil wrote." At one time, there were several types of accounts, and a few custodians involved, but post-retirement I consolidated the accounts at a single brokerage, which makes monitoring so much easier to do. I have many of the same funds in both accounts, which are approximately equal in value."

Also mentioning using the same funds across portfolios was hondo, who offered this take: "I monitor our portfolio with Quicken. The portfolio is one pie cut into three uneven pieces, the largest slice being traditional IRA accounts, then taxable accounts, and finally Roth IRAs. Each slice has the same allocation, using the same funds. I keep everything very simple by using two balanced funds and a small amount in two bond funds. What I do different than most investors is I use the same allocation, including bonds, in our taxable accounts. I realize that because of this, we pay more tax than we have to, but if or when something happens to me, my wife will not have to worry about managing our portfolio. The balanced funds will stay balanced and the bond funds will not stray very far." ​

Among those who said they use Morningstar's Portfolio Manager, win1177 offered up his method for using the tool to track his investments two ways. "We have a total of five different investment accounts after I moved into 'semi-retirement' this year," he wrote. 

"I have a taxable account and a Roth account, and my wife has a taxable account, Roth IRA, and a trust she inherited from her mother. We had more accounts (all work-related retirement accounts), but I rolled all of them into our two Roth accounts this year for simplicity and tax savings. Each account is entered as a separate portfolio in Morningstar, and then I combine all five portfolios into a 'Combined Portfolio 1,' which is a combination of all the individual accounts. I also have an Excel spreadsheet and I enter all the values of each separate holding into the spreadsheet every three months or so to guide us in rebalancing."

'By Goal or Time Frame'
Along with tax exposure, several investors wrote about monitoring their holdings according to their goals.

Llaroo wrote, "We use Morningstar portfolios and monitor by goal or time frame. For example, we have a separate portfolio for each of our retirement accounts (such as, SEP, each 401(k), IRAs) and then combine them for analysis using Morningstar's Portfolio X-Ray tool to make sure we are properly weighted in our overall retirement plan. Shorter-term portfolios, for example, college savings, are in separate portfolios that can be analyzed separately."

For user Carrie, goal-oriented monitoring of her investments is built around three pillars. "I have my emergency fund, I have my retirement accounts (401(k), Roth 401(k), a couple Roth IRA accounts, and a traditional IRA account), and I have my daughter's 529 plan," she wrote. "The only ones I spend much time monitoring are the retirement accounts, looking at them together using Portfolio X-Ray."

Chief K's monitoring scheme is based on the roles played by each of its three components. "I look at my portfolio through three windows: First, assets for the two years or so between retirement and drawing Social Security. I include cash and short-term bonds in this portion--it is obviously oriented to safety. Second, assets to supplement my pension and Social Security for the rest of my life. I include most of my assets, in what is currently a stock-heavy portfolio, in this category. Third, assets that I may, or may not, get around to spending."

Permanent vs. Variable and Other Ideas
Along with the more common methods, several users described creative ways for tracking their holdings. 

One such user was mwleach, who wrote: "I look mostly at our separate components, while keeping an eye on the whole, as well. First off is the split between our 'permanent portfolio' and our 'variable portfolio.' The permanent portfolio is almost always fully invested with a relatively fixed asset allocation and rebalanced periodically. The permanent portfolio contains all the assets we need for expenses and retirement (currently about 90% of our total investments). The variable portfolio, a.k.a. 'trading account' (though there has been precious little trading in recent years) is for short-term bets on well, anything--specific stocks or asset classes--with the potential for frequent changes based on current conditions. It is very nondiversified and very much a risk asset; if I lose it all it would have no effect on our lifestyle."

For Liberalone, tracking holdings is done from two very different perspectives. "I basically monitor our portfolio in two ways," this user said. "One: The primary goal is to have sufficient assets when combined with noninvestment income such as Social Security, part-time salaries, and IRA minimum required distributions. This results in monitoring total investment assets and comparing them to total income and budgeted amounts. Two: The portfolio is monitored for performance, tax efficiency, and rebalancing purposes, particularly in order to keep less tax-efficient investments in retirement accounts. Monitoring is greatly aided by Morningstar's Portfolio Manager tools." 

But Liberalone wasn't the only user with retirement income in mind when it comes to monitoring investments. RGWARDRI detailed this method: "I really believe simpler is better. In a simple Excel spreadsheet I have listed all of my investments in my portfolio and I monitor the values monthly in a separate spreadsheet for each month. I watch the values weekly so I gain greater knowledge of how my investments work. Along with the value I estimate the yield to be at 4% on the investments annually with the estimated annual income and monthly income. From this I subtract all our expenses and payment by category (utilities, insurance, mortgage, food, gas, charity, household, and so on) currently and how this would compare with if we were retired and could we live on this. What is the net after your expenses is key! Do you have a surplus or a deficit and what can you do to address where you are right now to your individual situation? Maybe you can retire early or maybe you need to postpone retirement. This cash flow review will really enable you to better understand where you are financially."