Investor Toolkit: How to get a clear snapshot of a fragmented portfolio

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Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you advice on portfolio management and other investment topics that will help you develop a successful approach to investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Today’s tip: “Treating separate investment accounts as one isn’t just a more efficient way to handle your investments, it will almost certainly help you improve your returns.”

These days, many households and even some individuals have five or 10 separate investment accounts. These accounts may include RRSPs (regular and spousal), TFSAs and other registered accounts, personal and joint accounts, corporate accounts, LIRAs from past employment, children’s accounts, trust accounts and so on.

In addition, some investors have one or more of what you might call “legacy” accounts. These are accounts with brokers you no longer do business with, but you never quite get around to transferring.

This fragmented-portfolio situation is more common than you’d guess. Many investors deal with it by adding up the total value of their accounts from time to time, to calculate their net worth. Most also look for performance discrepancies among accounts. But all too many take little more than an occasional glance at the relative weight of the various securities they own. They have an idea of what securities they own, but they are much less sure of the impact each holding has on the portfolio as a whole.

You generally have to keep your various accounts separate for tax and other purposes. But you should look at your holdings as if they were all part of one account. We continually do that to manage our clients’ portfolios. Here’s a simplified way that you can do it, too. If you were to follow our approach when we manage the portfolios of our wealth management clients, here’s how you’d do it.


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A few simple steps to a stronger portfolio

You’d start by listing all your holdings on a single electronic file (or piece of paper), and converting their value to Canadian funds. Then you’d separate them by kind. In particular, you’d want to group your stocks (plus equity-type holdings like REITs) in one section, and your bonds and other fixed-return investments, like GICs, in the other.

Our one-big-portfolio analysis goes a lot deeper, of course. But the balance between stocks and bonds—call it equity and debt if you prefer—is a key indicator. That’s because bonds give you higher stability than stocks in the long term, but at a cost of lower returns than stocks.

Next, you’d determine the economic sector of each of your stock holdings. Then, add up the value of each of your stocks, and the total value of all your stocks. Do that and you can determine how much representation your stocks give you in each of the five main economic sectors—Utilities, Finance, Resources & Commodities, Consumer Goods & Services, and Manufacturing & Industry. This too is crucial.

The Manufacturing and Resources sectors generally expose investors to above-average risk. Stocks in the Utilities sector generally expose you to below-average risk. So do stocks in the Canadian segment of the Finance sector, particularly the top five Canadian banks. The Consumer sector falls somewhere in the middle.

By weighing the balance among the five sectors, you can form an idea of the degree of overall risk in your portfolio.

Next you’d go on to apply our TSINetwork Ratings to each of the individual holdings in your portfolio. Our common stock ratings are Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up. You’d want to make sure that your stocks are made up predominantly of “Average” or higher-quality stocks that we currently recommend as buys.

We apply our portfolio-analysis technique much more deeply for our clients, of course. But applying just this much of it puts you far out ahead in understanding how much risk your portfolio exposes you to, and how close it comes to being right for your objectives and temperament.

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

Have you ever set out to do a thorough review of separate investment accounts in your household? Were you satisfied with the results? What was the single biggest advantage you achieved in the process?

Note: This article was initially published on November 21, 2012.

Comments

  • Graham J.

    Make a spreadsheet of all of your investment accounts, and all of the investments in each one. Have a column for Account number and another for Type of investment (financial, consumer etc.)
    Sort the data by account number to input the data, then sort by type of investment to see that your investments are covering all of the categories and not too concentrated in any one.
    A column outside of the sorted area can be set up to indicate the totals in each account (when sorted by account) and another column to indicate totals in each category (when sorted by category).
    This helps rationalise your overall investment coverage, and will help make better investment decisions.

  • This approach makes sense to me. Consolidating accounts where possible keeps things simpler and easier to determine when current action is needed to maintain wealth. First rule of investing, don’t lose money, second rule of investing, see first rule.

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