ITA Wealth Management

My January copy of the AAII Journal arrive yesterday, and the cover headline was, New Year’s Resolution: Review Your Portfolio (We’ll show you how).  I was interested in what the author had to say as all the portfolios tracked over on the Premium Content side of ITA Wealth Management are updated at least once every four or five weeks.  Since the article is much too long to review and expand upon in one blog, I will stretch my comments out over a number of days.  Here are the article highlights.

• A regular portfolio review can help you reach your investment goals.
• The author explains how to conduct a proper and thorough review.
• Plus, find out why having goals can help you set better expectations.

“The start of a new year is a perfect time to review your portfolio.  If you have not been monitoring your portfolio on a regular basis, now is the time to resolve to do so in the future.”  I completely agree with the author’s point of view.  The serious investor has been monitoring since they started investing, but many of us did not have adequate tools when we began to build our portfolios.

Back in 1979, I saw my first personal computer and what sold me on the machine was a spreadsheet program called VisiCalc.  My first and immediate reaction was — I can track investments using that software.  I’ve been using spreadsheets ever since to track investments.  Now, back to the portfolio review article.

Julie Jason, author of the AAII Journal article, writes, “In my experience speaking with investors, I can tell you that it is a rare individual who takes the time to do such a review, even though a regularly scheduled portfolio review is the foundation of a constructive and successful investment program.  After all, how else can you determine if you are on track?  How else can you assess when and how to change direction?”

Apparently, I am a rare individual.  And I expect most of my Premium clients are also “rare individuals” as I assume (or at least hope) the majority have a portfolio policy and are using the TLH spreadsheet to track, monitor, and review their portfolios.  The TLH spreadsheet acts like the family budget plan.  We use the TLH spreadsheet to record every sale, purchase, stock split, dividend distribution, and interest payment.  The TLH spreadsheet is used to track the Internal Rate of Return of each investment and the entire portfolio.  We also track four different benchmarks including the ITA Index, a customized benchmark that fits each investors portfolio.  The latest version of the TLH spreadsheet also measures the risk of the portfolio and from that measurement, we determine the Information Ratio.

Let’s back up for a moment.  In order to be able to review a portfolio, to see if it is meeting your goals, you must first have a portfolio policy.  This means writing down a plan or policy, if only in spreadsheet form.  After developing a savings plan, one needs to set up a portfolio policy plan.  Help setting up a portfolio policy is available both here on the free side of this blog and over on Premium Content.  Readers will find the details of how to use the TLH spreadsheet over on the Premium side.

Jason continues in her article, “Many individual investors tend to look at the bottom line on their brokerage statements to determine progress — am I ahead or behind this month compared to last month?  Indeed, this is one quick way to gauge success or failure, but it stops short of putting things into meaningful context upon which decisions can be based.”  Jason is right on the money with this paragraph.  To know if the portfolio is meeting your goals, one needs to know if the portfolio is outperforming a meaningful benchmark.  I’ve written a great deal about benchmarks and if you missed those blog entries, do a search on the word.

Stay tuned for more specifics on what it means to review a portfolio.  Topics of interest will obviously include diversification, risk measurement, benchmarks, and specific investments.  Become one of those “rare individuals” and do a thorough review of your portfolio.  This blog is designed to help readers become better investors and portfolio review is part of that process.

Photograph: Entering Venice, Italy

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