Family trusts can provide several benefits for business purposes, tax optimization, or estate planning....by Jonathan Anthony
What Portfolio Reports Tell You About Your Investments: Uncovering Insights for Informed Decisions
Portfolio reports can help reveal the key details you need for investment success.
You’ve taken the leap and invested your money to prepare for retirement. Smart move.
The first step is always the hardest, but what next?
How do we know if we’re on the right track or if we need a course correction? Portfolio reports are the solution.
What is a Portfolio Report?
Portfolio report is a general term used to describe any report generated by your mutual fund, broker, investment manager, or your own portfolio management software that presents data or analyses about your portfolio.
Basically, it’s like a report card about your investments.
Portfolio reports use stock charts, graphs, tables, and written narratives to provide a detailed insight into your investment portfolio, which you can use to make informed decisions.
“How are we doing?“
This is the first question most people ask once they start investing. Specifically, we want to know if we made money (gain & loss), how we’re doing compared to everyone else (benchmarking), and which investments are paying the most (contribution analysis).
Gain & Loss
The most basic assessment of portfolio performance is to simply determine whether our investments are worth more or less now compared to when we started.
While this is far from a complete picture when analyzing portfolio performance – especially over the short term – it’s a good place to start.
If we’re making money, we know we’re doing something right. Our strategy might be working. If we’re losing money, our strategy might not be optimal.
This is especially true when comparing gain and loss over a more extended time period. If you’re persistently losing money, it might be time to rethink your strategy.
Gains and losses only tell part of the story because these results lack context. If we lost money, but the market lost much more, we still might be on the right track.
If we made money, but the broader market made more, we might be doing something wrong.
Benchmarking provides the context and comparison we need to adjust our strategy or stay the course.
Most portfolio performance reports will include a common benchmark, such as the S&P 500, to help us understand what our gains and losses mean compared to the market as a whole.
For example, suppose we have a managed mutual fund, and portfolio reports consistently show our investment underperforms the S&P 500.
In that case, we should invest in an exchange-traded fund (ETF) that tracks the index rather than waste money paying a fund manager.
If our portfolio report showed we made money, but benchmarking indicates we made less than we should have, we might have an issue.
One possibility is that we have a portfolio balance problem where poor-performing stocks are dragging down winners.
Contribution analysis helps identify top and bottom performers by breaking down exactly where our gains and losses are coming from.
We can use this information to effectively rebalance our portfolio by cutting loose losing stocks and doubling down on winners.
This is a normal part of long-term portfolio management.
“Does our risk match our goals?“
The other half of the portfolio analysis equation is risk assessment. It’s important to remember that, for investors, risk is neither good nor bad. More risk often means more opportunity. What’s important is that your risk exposure matches your investing goals.
Risk appears in a variety of forms, but portfolio reports help us reveal risk from investment balance (asset allocation), risk from stock diversification (sector allocation), and risk built into an individual stock (volatility risk).
While stocks are a great investment, they carry risk. The stock market has collapsed in the past and will do so again in the future.
But that’s okay; that’s just part of the game. The important thing is that we protect ourselves by spreading our total investment among several asset types, not just stocks.
Asset allocation refers to the overall balance of investment types in your portfolio, such as stocks, bonds, precious metals, real estate, etc.
Each asset class has a specific risk, so the more your investments are allocated to a single asset class, the greater the risk.
Portfolio reports can help reveal exactly how your investments are allocated so you can make sure your risk exposure matches your goals.
The challenge here is that unless you have an investment manager, you usually need to compile this kind of report yourself.
Your mutual fund doesn’t have information about your real estate or precious metal holdings.
The simplest and most accurate solution is to use a consolidated portfolio tracking system that can easily be updated with all your investments and automatically generate an asset allocation report.
By seeing how your assets are allocated, you can optimize your portfolio to ensure your risk exposure matches your current investing goals.
Sector allocation analyzes which sectors and industries are represented by your stock holdings. Investing too heavily in one sector or another can leave you overexposed to sudden changes in that sector.
For example, if half your portfolio is in semiconductor stocks, you’re highly vulnerable to sudden changes in the industry, such as disasters, disruptive technology, or regulatory changes – any of which can spike or crater stock prices throughout the sector.
Portfolio reports help you see an exact breakdown of sector exposure so you can adjust accordingly to meet your investing goals.
Depending on your risk tolerance, you might actually seek out sector concentration to take advantage of opportunities. Either way, a good portfolio report can tell you exactly where you stand.
Volatility risk refers to the risk inherently built into the stock, which is distinct from the diversification risk described above. In this context, we’re referring to volatility and variability in stock price, which can be measured against a standard benchmark.
Portfolio reports reveal this information so you know how much risk exposure a particular stock represents and gives you the data you need to make adjustments accordingly.
Again, this isn’t necessarily a problem. The more volatile a stock, the greater the risk, but also the greater potential reward – just be sure this fits into your investment strategy.
Using Portfolio Reports to Enhance Your Investment Strategy
Now that we have an idea of what portfolio reports can provide, let’s look at how these reports can enhance your current investment strategy.
Knowledge is Power
In the simplest terms, investing is a game of knowledge and insight. The more you know about what happened in the past, the more equipped you are to guess right about what might happen in the future.
So, you need to know about the market, but you also need to know about your portfolio to understand what opportunities you have and how you might be affected by future events.
Portfolio reports deliver the knowledge and insight we need to make informed decisions.
Think Long Term
While all traders can benefit from portfolio reports, this tool is beneficial to long-term investors. You’re probably not tracking the market every day because you either don’t have time or are just not interested.
Whatever the case is, you need a quick and consolidated solution with all the data and analysis necessary to stay on the right track.
If you’re a short-term trader, portfolio reports are less critical. You are likely tracking this information daily and are less interested in long-term trends. You might want to generate specific reports occasionally, but they will unlikely be useful for short-term positions.
Portfolio reports are really optimized for long-term, non-professional investors.
For long-term investors, you don’t necessarily need to check your portfolio often, but you should check it regularly – sort of like going to the dentist. Every quarter, look at your portfolio reports to ensure everything is on track and nothing weird is going on.
Remember, this is a lifelong process, and micromanaging can be counterproductive. Instead, keep your eye on the big picture, follow long-term trends, and make adjustments a few times a year based on accurate data.
The big difference between amateur and pro investors is that pros don’t make decisions based on emotion. They make rational decisions based on cold, hard data.
Portfolio reports provide the data and comparisons you need to really understand what happened with your investments and where you can make improvements.
If you start buying and selling shares every time you get spooked by some bad news or random recommendation, you’ll burn yourself up emotionally and financially.
Remember, even serious professionals fail to beat the market over time, so it’s foolish to try. Instead, stick to sound principles and solid data – not passion or fear.
With everything consolidated in one place, comprehensive portfolio reports make it easy to analyze your portfolio. There is no need to search for a bunch of data to make comparisons or track down statements.
Portfolio reports provide simple summaries to easily analyze your investments, make quick decisions, and get back to living your life.
Even those who manage their portfolios may need to occasionally consult with professionals.
Rather than forcing your financial advisor or tax professional to track, organize, and analyze a bunch of bank and broker statements, you can hand her a pile of portfolio reports that tell her everything she needs to know about your financial situation.
Quick Net Worth Assessment
If you find yourself seeking a house or business loan, you usually need to present some information about your net worth. Sure, you could tally up your holdings on the back of a napkin, but that doesn’t exactly suggest you’re the kind of person banks want to be in business with.
Instead, presenting a clean – and successful – portfolio report generated by your investment manager or portfolio tracking system lets anyone know you’re on top of things. Every little bit helps.
Consolidate Portfolio Tracking
While most mutual funds will offer complete portfolio report packages to their investors, you must develop an overall picture of your entire portfolio, including stocks, bonds, real estate, precious metals, valuables, and more.
Using portfolio reports generated by a consolidated tracking system, you can see the complete picture of your entire investment portfolio, not just stocks. This takes some effort upfront, but it pays off in the long run – especially for non-professional investors.
Take Advantage of Portfolio Reports
We hope you have a better idea about what portfolio reports provide and how they can help you be a better investor. No matter what goal we have in life, more quality information improves our insight and increases our chances of reaching our goals.
When it comes to investing and portfolio management, portfolio reports provide that critical insight into performance metrics and risk assessment to help us make the best, most informed decision possible.
If you are interested in generating portfolio reports for yourself, our portfolio tracking and consolidation software provides a wide variety of comprehensive reports so you can always know what’s happening with your investments.
StockMarkeyEye comes with a 30-day trial, so you can see everything our software offers. Give it a try today!