Format for quarterly investment review

[zetta]

For a couple of years now I've had a goal of reviewing my investments on a quarterly basis, but I've struggled with what exactly that review should look like. I think I've finally come up with a list of items to look at.

• Net Worth -- calculate sum of all assets & liabilities
• Asset Allocation -- run x-ray and compare to my target allocation
• YTD Activity -- maintain a list of all trades (stock, mutual funds, ESPP, stock options exercised) and the gain/loss associated with each
• YTD Dividends & Capital Gains -- sum of dividends and capital gains distributed by my mutual funds
• Potential Activity -- list of actions I'm considering taking within the next year (amount of new money to invest and where to put it, transfers between accounts, ROTH conversions, etc.)
• YTD Portfolio Return -- internal rate of return
• Fund Analysis -- list reason for having each fund, and whether it is a candidate to buy, sell, or hold going forward

What do you think?

[jIM_Ohio]

Looks good.

I do only an annual review, and people are telling me my IRR is only an approximation because I look at all deposits as one amount, and do not track quarterly or similar.

The question I would ask is what are your intended actions or results for tracking this information?

[zetta]

Reviewing once a year is too infrequent for me -- I completely forget what I have and am climbing the learning curve all over again each time. I'm hoping that reviewing quarterly will help me be more aware of my investments.

I plan to use the information to decide where to direct new investments (which will usually occur once a year when I figure out SEP-IRA and IRA/ROTH contributions at tax time), and also to consider rebalancing the asset allocation once a year.

Also, I just want to understand investing better...

[jIM_Ohio]

Reviewing once a year is too infrequent for me -- I completely forget what I have and am climbing the learning curve all over again each time. I'm hoping that reviewing quarterly will help me be more aware of my investments.

I plan to use the information to decide where to direct new investments (which will usually occur once a year when I figure out SEP-IRA and IRA/ROTH contributions at tax time), and also to consider rebalancing the asset allocation once a year.

Also, I just want to understand investing better...

Devils advocate question-
how long do you need to see numbers trending one way or the other before making a decision on rebalance?

For me, I need to see one data point (ytd returns) and I can make a rebalance decision on the spot with new money only (I very rarely sell anything I own, I just rebalance with new money only).

How many accounts do you have:

1) Zetta 401k/workplace retirement
2) Zetta rollover IRA
3) Zetta Roth IRA/ traditional IRA
4) spouse 401k/workplace retirement
5) spouse Rollover IRA
6) spouse Roth IRA/ traditional IRA
7) taxable investment accounts (combined spouses)

Can you list your
a) overall asset allocation for whole portfolio
b) asset allocation for each account
c) projected/desired asset allocation for each account
d) time horizons for each account (meaning is one spouse retiring before the other, or is taxable account going to be accessed before the others)
e) annual deposits to each (if you are not comfortable showing raw numbers, express as a function of income [20% of gross] and as a function of total account value [5,000/500,000=1%] deposit is 1% of total retirement assets] and also express deposit as function of account value [5,000/100,000=5%] deposit into roth is 5% of account value)

for e) what I am after is if you put 5k into a Roth for each of you, and you have 500k invested already, your deposits are 1% of total retirement assets and 5% of the account value, and you are shooting for an allocation of 80% equities-20% bonds, I have an idea as to how much impact the deposits have on a rebalance effort. You do not need to post exact numbers, you could be off by 10-20% when you post and I could still give decent advice.

For example, in my case we have close to 200k total invested. However my wife's Roth has less than 10k in it. So when 5k is deposited over a year, it unbalanced any rebalance effort I might have done even 3 months ago. I am looking for situations like this in any of the accounts 1-7 before suggesting what you track.

You have a pretty good idea what to track already, I will show you what I track in this thread for my family and interpolate this to your situation if you want me too.

[zetta]

Devils advocate question-
how long do you need to see numbers trending one way or the other before making a decision on rebalance?

Great question! Rebalancing will initially be done by redirecting new money. I'll have to think about when I would sell to rebalance -- I like the idea of seeing a trend for a few quarters rather than triggering on an absolute value. One wrinkle is that we each make the decisions our own accounts, so I can't tell DH where to put his 401k or stock trading money.

We've got all the accounts you listed. Our rollover IRA's also had a couple of years of traditional contributions.

1) Zetta SEP-IRA: $29k -- mostly in 50/50 balanced fund
2) Zetta rollover/traditional IRA: $217k -- see allocation below
3) Zetta Roth IRA: $36k -- large growth
4) spouse 401k: $54k -- large-cap blend international funds
5) spouse rollover/traditional IRA: $57k -- Asia, latin America, emergng markets funds
6) spouse Roth IRA: $6k -- international value
7) Zetta taxable investment: $318k -- see allocation below
8) spouse stock/ESPP/stock option acct: $22k -- tech stocks, invested for short term gains
9) emergency fund: $33k (3 months income, six months needs) -- money market

Total retirement: $399k
Total taxable: $373k


Can you list your
a) overall asset allocation for whole portfolio
Domestic Stock: 33%
International Stock: 46%
Bond: 9%
Cash: 12%

large-cap: 28/27/28
mid-cap: 4/4/5
small-cap: 1/1/2

b) asset allocation for each account

Zetta IRA:

• Domestic Stock: 36%
• International: 48%
• Bond: 10%
• Cash: 5%

Zetta taxable:

• Domestic Stock: 47%
• International: 34%
• Bond: 13%
• Cash: 6%

c) projected/desired asset allocation for each account

A target allocation for each account seems like overkill. I just have a target for the whole portfolio. I could see an argument for having different targets for retirement vs taxable. The REIT and commodity funds are recent ideas for me -- without them the target for domestic stock would be 35%.
Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

d) time horizons
Goal is to retire at age 61 with an income of $150k
Taxable account -- access for early retirement in 22 years
Retirement accounts -- access when it makes sense tax-wise (or when required for minimum distributions)

e) annual deposits to each

DH maxes out his 401k each year. I will put $8600 into my SEP-IRA for 2009, but won't be working in 2010 and 2011. We will probably be eligible for ROTH while I'm not working. I'm not sure whether we'll save enough to fund them, we might sell some taxable to contribute to the ROTH.

1) Zetta SEP-IRA: deposit $8,600 for 2009 only, 2% of retirement, 30% of account
2) Zetta rollover/traditional IRA: $0
3) Zetta Roth IRA: $5k for 2010, 1% of retirement, 14% of account
4) spouse 401k: $16,500 annually, 4% of retirement, 30% of account -- in large-cap blend international funds
5) spouse rollover/traditional IRA: $0
6) spouse Roth IRA: $5k for 2010, 1% of retirement, 83% of account
7) taxable investment: $0
8) spouse stock/ESPP: $10k, 2% of taxable, 50% of account -- tech stocks, invested for short term gains
9) emergency fund: $0


Potential moves:

1) $8600 to REIT in SEP

2) Move $30k from zetta taxable to 529 plans

3) Move $5k from zetta taxable to REIT or commodity fund in ROTH

4) Move $5k from spouse taxable to spouse ROTH

5) Move half of EF to CD or bonds

6) Look at whether to recharacterize part of traditional IRA to ROTH in 2010 (tax bite could be a big issue)

[Broken Arrow]

Ah Zetta, I knew you wouldn't disappoint.

You sure something like a portfolio tracker wouldn't work for you? The likes of Morningstar or even Yahoo Finance? I think we've had this conversation before, but I don't remember the details.

[jIM_Ohio]

I am about to spam this thread with posts (sorry) so I can organize some thoughts.

Starting here I need to see this
this is target asset allocation

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

[jIM_Ohio]

Devils advocate question #2 (this might not really be a question).

If each account has its own unique asset allocation, how I track things and do things will not apply, as much.

My argument for having each account have a "similar" asset allocation include
a) you can rebalance one account without even concerning yourself with amounts of deposits in any other account.
b) when comparing rates of return from your Roth to your 401k, it is apples to apples (most of the time). Meaning if you see a 15% return in your Roth, and a 13% return in your 401k, if the accounts have different asset allocations you cannot draw any conclusions from the return difference. If the accounts have similar allocations, there are analogies to be made.

[jIM_Ohio]

1) Zetta SEP-IRA: $29k -- mostly in 50/50 balanced fund
2) Zetta rollover/traditional IRA: $217k -- see allocation below
3) Zetta Roth IRA: $36k -- large growth

Zetta IRA:
Domestic Stock: 36%
International: 48%
Bond: 10%
Cash: 5%

1) Zetta SEP-IRA: deposit $8,600 for 2009 only, 2% of retirement, 30% of account
2) Zetta rollover/traditional IRA: $0
3) Zetta Roth IRA: $5k for 2010, 1% of retirement, 14% of account

I want to see these data points together because you admittedly have more control over these than spouse's accounts.

[jIM_Ohio]

772k total investment assets

SEP IRA is 29k; 3% of total balance; deposits of 8600 would be 1.1% of balance.

Question- do you prioritize the Roth deposits before or after a SEP deposit (for example if you had a bad year, and only 9k was invested, would you max the SEP then fund Roth with remainder, or fully fund Roth with 5k then put remainder into SEP?).

Rollover IRA is 28% of total balance and no deposts are made.
allocation here is

Zetta IRA:
Domestic Stock: 36%
International: 48%
Bond: 10%
Cash: 5%

which is close to target of

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

My comment would be get the rollover "always" in line with target allocation and use other accounts to compliment this. In line to me is within 5% at all times.

Zetta Roth IRA: $36k. 4.6% of total balance, 5k annual deposit is less than 1% of total portfolio value.

Comment 1- I see a comment like this

We will probably be eligible for ROTH while I'm not working. I'm not sure whether we'll save enough to fund them, we might sell some taxable to contribute to the ROTH.

And I would remove the word "might" from this.

I see no reason to NOT move money from taxable accounts to Roth. Feel free to question me on this for some discussion, but reality is I would start getting as much into Roths as you can, with caveat that when you are within 5 years of retirement, rethink my advice for only those 5 years.

Comment 2- Roth size right now is small, this will grow to be a larger piece of the pie with more deposits.

Comment 3 of the 772k investment assets, I read/interpret that you have control of 77% (600k) of the total. Is this correct? If you feel comfortable, can you help me understand the dynamic where husband invests in what he wants? If you made a suggestion, would he listen?

[jIM_Ohio]

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

I have some questions for you- these will be very specific, and are along lines of how I manage accounts (6 of them- we each have a 401k-rollover and roth)... I know login IDs and passwords to all 6, wife knows none of them- so I have complete autonomy and control over what account does what.


I am going to suggest you have 1 target allocation

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

and then we discuss how much risk/effort/ interest you have in trying to tackle this allocation with more than one technique.

Here is what I do (meaning I am going to explain what I do, then make a suggestion for how you can apply this your situation).

My target allocation is
40% domestic large cap
15% domestic mid cap
15% domestic small cap
15% foreign large cap
10% foreign small cap (and/or emerging markets).
5% diversified bonds (covers both domestic and foreign in 1 fund)

The domestic large cap gets reduced as I add bonds. Mid and small caps would be reduced as I add commodities.

I personally am not comfortable with more than 35% international, even though the weak dollar makes for better international returns these days.


In the large accounts (which are mine and wife's 401k and my IRAs), I implement the allocation with "pure" funds which invest in the given asset class/ market cap.

In the 1 small account (which are wife's IRAs), I invest in sector funds and attempt to mimic the same allocation, I just get to it differently. I invest in funds like Africa/Middle east, health care, natural resources and similar, attempting to get the allocation within the target.

Keep in mind, the sector funds for us are less than 10% of total assets, so even if I screw it up, the likelihood of poor portfolio performance because of my bad choices is low.

In your case, I would do the following:

1) Move money from taxable to Roth (5k per year) to boost Roth value up.
2) consider the following accounts your core:
Roth, Rollover and taxable
3) consider this account your "extra"- the SEP IRA

So instead of a 50-50 balanced fund in SEP, which appears out of whack with way rest of your porfolio is already set up, consider trying to deploy the target allocation with some sector funds

like health care, tech, real estate, natural resources (I can list more if you want- this part of portfolio is 9-10 funds).
and africa/middle east, latin america and similar sector plays
and if you want a challenge, throw in a fund or two with a global label too (like global tech or global stock). You are still trying for the same allocation:

Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

By slicing it differently, your rebalance trends will be different and you can track better too. For example I know from having a sector portfolio that emerging markets and natural resources are the sectors which are doing well, and health care is a sector lagging right now, so I put new money into health care (buy low) and do not buy natural resources right now (higher relative value), but the overall allocation of portfolio is still the same, which is what drives most of the returns anyway.


Here is "why" I would have each portfolio set up about the same allocation wise:

1) the accounts which are low in value now are the ones which will be highest when you retire. The Roth in particular you want to be the most money of any of the accounts. So make sure it has an allocation which resembles your normal investment model

2) Your deposits are a very small fraction of your balances. My 20k annual deposit to all accounts is 10% of my retirement account balance. Your 44k of annual deposits is about 5% of overall portfolio value, and this 44k will be even smaller as the current investments grow and compound.

3) using deposits to rebalance will come slowly. If one account is 10k or 20k off from targets, it might take 2 years to rebalance. It is important to track properly as account balances get larger (IMO).

4) Some of the accounts (like rollover IRAs) get no new money. This means if the rollover account holds fund A only, and that fund overperforms/outperforms to point where you need to sell, you need another fund inside same account to sell into. Meaning that any account which gets no new money (based on IRS rules) needs to be able to rebalance within itself, without triggering a rebalance anywhere else.

5) discussion of allocation of taxable accounts has not been done yet-
I see allocation

Domestic Stock: 47%
International: 34%
Bond: 13%
Cash: 6%

and my advice would still be to maintain this allocation as close to target as possible. I am surprised you did not hold commodities in taxable, because last I checked, silver and gold do not pay dividends (my commodities are in a taxable account and other than a natural resources fund in my wife's IRA, I hold no other natural resources specific funds).

6) All of my advice centers around 3 primary beliefs
a) the number 1 influence on porfolio returns will be % stocks- % bonds
b) the number 2 influence on porfolio returns will be % domesitc- % foreign
c) the number 3 influence on portfolio returns will be from the sectors or market caps I invest in (large caps vs mid caps, tech vs health care type decisions)

Meaning all the work I do to get each account with a similar allocation is done so I can compare my Roth returns to wife's 401k return- we should each have similar returns because the allocations are almost identical "at top level".

For example if target allocation is this

40% domestic large cap
15% domestic mid cap
15% domestic small cap
15% foreign large cap
10% foreign small cap (and/or emerging markets).
5% diversified bonds (covers both domestic and foreign in 1 fund)

and no mid cap fund exists and no foreign small cap fund exists within wife's 401k, this allocation will have almost identical returns

40% domestic large cap
30% domestic small cap
25% foreign large cap
5% bonds (nothing foreign)

the 95-5 is preserved
the 70-25 domestic-international allocation is also preserved
the fund makeup was not, but not enough to make me lose sleep.

[jIM_Ohio]

Great question! Rebalancing will initially be done by redirecting new money. I'll have to think about when I would sell to rebalance -- I like the idea of seeing a trend for a few quarters rather than triggering on an absolute value. One wrinkle is that we each make the decisions our own accounts, so I can't tell DH where to put his 401k or stock trading money.

We've got all the accounts you listed. Our rollover IRA's also had a couple of years of traditional contributions.

Here is how I rebalance:
with any account getting new money, they are rebalanced with the new money. I can do this because a 5k deposit in my Roth over 10 months will be enough to correct anything needed (IMO).
In your situation the same 5k deposit might not be enough... so you need a better rebalancing plan.


In the sector fund position, ytd return is all I look at for what to buy next. For example, that portion has the following funds (growth fund, value fund, africa/middle east fund, emerging markets fund, global tech fund, science and tech fund, health care fund, new era (natural reources fund), real estate fund, financial services fund). One fund gets no new money (global tech) because its in rollover. The other 9 funds, 1 will not get new money (that would be last year's best performer) and the other 8 funds each get $50/month. I then choose 2 funds to put $50 more in- and ytd returns are what I use for that decision- I buy the 2 worst performers based on ytd number displayed on web site.

So in 2008 I was buying financial services and real estate fund. In 2009 the financial services fund was my best performer, so I stopped in June, and changed it to real estate fund and health sciences fund. The main focus is to buy low with new money. I sell nothing as a matter of principle now, but will have to in 5-10 years as the account grows, I am sure.

The growth and value funds are my baseline inside that portfolio- once each has a decent amount in it (probably 10k), I will leave them at 10k every year, and compare returns of each fund inside the sector account to the combined return of the growth and value funds, as well as comparing to rest of my portfolio.


So in each account I would track
a) 1 year porfolio return
b) 1 year return of each fund in account

I would then also track
c) all large cap funds (making sure the returns of the 3-4 large caps you own are performing close to each other)
d) all foreign funds (tracking to see how close your foreign funds performed to each other). Hint- if all foreign funds are tracking in a similar fashion, my bet its the weak dollar and not fund performance.

I would then also try to predict
e) can new deposits rebalance within 12 months?
f) retirement date and draw down strategy (you said retire at 61, but did not tell me if that is 2010, 2020, or 2030...)


done posting, but some of this is still a work in progress as I get more info from you, or you suggest questions for me.

[jIM_Ohio]

I missed this post above

d) time horizons
Goal is to retire at age 61 with an income of $150k
Taxable account -- access for early retirement in 22 years
Retirement accounts -- access when it makes sense tax-wise (or when required for minimum distributions)

150k retirement income means you need 3.75M invested (for 4% withdraws) as the "target" for retirement in 22 years.

You have an additional requirement that you want to draw down only taxable accounts prior to age 59.5, I will question this and suggest we look at a total portfolio strategy while accumulating, and if a SEPP is needed from traditional, we could consider that, unless you tell me why to disclude this option in your case.

With this allocation
Domestic Stock: 25%
International Stock: 50%
Bond: 10%
Cash: 5%
REIT: 5%
Commodity: 5%

I would project returns of 9% over time (do you agree this is reasonable)?
I would also expect deviations to be between 12-17%- meaning +26% is as likely as -8% (9+17=26;9-17=-8). I can look up deviations later, main point is how you grow using above allocation is not how you would preserve same assets once you had enough to retire on.

9% return doubles every 8 years

You have 772k in 2010
You will have 1.5 M in 2018
You will have 3 M in 2026
You will have 6 M in 2034

You wanted to retire in 22 years, 2032
you have enough saved now to meet that goal (2032 will have well north of 4 M by that time).

Here is what I might suggest discussing:

1) keep same aggressive allocation until you have 3M portfolio value
2) once portfolio hits close to 3 M, the focus should shift to withdraw strategy more than accumulation... and allocation should also shift to preserve what you have (suggest 40-60 or 60-40 at that time).

If you can get porfolio to a 3% or 3.5% withdraw rate, your probability of retirement never running out of money, or retiring in less than 22 years is much more likely.

4% withdraw rates last for 30 years 90% of time in history on a 60-40 portfolio.
Once you hit 2.5% withdraw rate, I believe success would be 100% as the S&P 500 pays out 2.5% in dividends alone, so you would never have to sell a thing to succeed at 2.5% withdraw rate.

[zetta]

Ah Zetta, I knew you wouldn't disappoint.

How could I resist? Especially when jIM is offering to pore over it in the kind of excruciating detail I enjoy?

You sure something like a portfolio tracker wouldn't work for you? The likes of Morningstar or even Yahoo Finance? I think we've had this conversation before, but I don't remember the details.

I would dearly love some software to help me track all this! I took a look at Morningstar, but can't bring myself to pay $180/yr for the premium membership -- I do use the free instant x-ray, although it takes me over an hour to collect and enter all the values. I tried Quicken, but it was useless (characterized a big chunk of my mutual funds as "other", which was clearly incorrect). I'll have to check out Yahoo Finance...

Ultimately I'd love to convince Jesse over at YNAB to create a new product to my specification -- call it YNIP (You Need an Investment Plan).

[jIM_Ohio]

For a couple of years now I've had a goal of reviewing my investments on a quarterly basis, but I've struggled with what exactly that review should look like. I think I've finally come up with a list of items to look at.

• Net Worth -- calculate sum of all assets & liabilities
• Asset Allocation -- run x-ray and compare to my target allocation
• YTD Activity -- maintain a list of all trades (stock, mutual funds, ESPP, stock options exercised) and the gain/loss associated with each
• YTD Dividends & Capital Gains -- sum of dividends and capital gains distributed by my mutual funds
• Potential Activity -- list of actions I'm considering taking within the next year (amount of new money to invest and where to put it, transfers between accounts, ROTH conversions, etc.)
• YTD Portfolio Return -- internal rate of return
• Fund Analysis -- list reason for having each fund, and whether it is a candidate to buy, sell, or hold going forward

What do you think?

Now that I listed a whole bunch of issues and comments, I wanted to make sure I focused on original question- what to track...

Net worth- this number might help you, it did not factor into any of the numbers I listed below...

asset allocation- I think discussing how you allocate is as important as tracking it. This is main issue of my focus in responses... and along these lines I will add some comments

a) if you need to sell X and buy Y, you need to have X and Y be in same accounts, or whole allocation puzzle will be too tough to manage IMO.
b) if you sell and X and Y was not in the same account, you have tax implications or need to redirect deposits in other accounts to add Y to another account. My suggestion is to avoid this, and set up each account so it has a stand alone allocation.

YTD dividends and capital gains
track this by account and total- this might start suggesting what withdraw strategy is when you near retirement (can you live off of gains only). During accumulation, this is not a needed number to track, though.

Potential activity. I don't fully understand listing things you might do. Roth conversions are automatic- if you can it up to bracket cap, do it. If each account has the same allocation, then there is no net effect on anything except the tax consequences now.

If rollover holds assets X-Y-Z
and Roth holds similar assets X'-Y'-Z'
if I sell Z and buy Z'
there is no net change in overall portfolio asset allocation

If this still concerns you, sell some X-Y-Z in rollover, buy some X'-Y'-Z' in roth and keep allocations of rollover and roth the same both before and after the conversion.

YTD return of each account is a must
I would also track YTD of each each asset class inside each account (probably each mutual fund) and also track
YTD return of all asset classes across all accounts (compare how the 3-4 foreign funds performed relative to each other and compare how the small cap funds did relative to each other).

Fund analysis-
If you do the sector fund strategy with a small amount of money, this is needed. Not to detail you describe- I know why fund is there- but more along lines of is this particular sector fund a dog?