Investor Toolkit: Take a clear snapshot of your total 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: “Look at your portfolio as a single account, and you’ll better manage risk and expand 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 portfolio management 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

How often do you review your investment portfolio? What do you look for? Have you made any significant changes recently to better diversify and balance your portfolio? Let us know what you think.

Comments

  • David

    I use a Spreadsheet to track my Investments, and particularly to track my Capital Gains and Losses for Tax Purposes – but I always find it inadequate at tax time. Does anyone have a better suggestion to use a software program that is available free?

  • Linda S.

    I have investments in several places as per the article above. My question is, how do I assign a rating to investments that you have never discussed in your newsletters? Its easy to rate the many that I have chosen from your advice. I have an excellent broker who manages the bulk of my money, but I use your information to manage a personal trading account of my own.

    • Alexander

      Hi Linda,

      We explain our rating systems as part of the portfolio section of each Newsletter. You can use it to determine the TSI Network Rating of any stock.

      Thanks for your comment!

      -Alex

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