For investors, the past year has felt like a long, hard winter: a nasty slog that we can't put behind ourselves fast enough. There's no telling whether the recent rebound is the start of something big or the equivalent of a summer's day in a London February. Nonetheless, it's still a good time to assess the damage that the bear market has wrought on your investments, get your financial paperwork in order, and develop an action plan to address any problem spots.
So what should be on your spring financial to-do list? I haven't addressed each and every important financial task, but here are some of the most important tasks you should focus on. I've rated each of the tasks by difficulty level.
Step 1: Organise your paperwork
Degree of difficulty: Moderate to difficult
With the volume of papers and junk mail coming in, keeping your home
office or desk free of clutter is a daily battle. If you're winning that
war and have a filing (and disposal) system that makes sense for you,
give yourself a pat on the back and move on to the next task.
For the 96% of you who still need some help in the organisation area, here are some organisational tips: learn what is worth keeping and what is worth chucking; know how and where to store what you keep; create a directory of all your account details and advisers' contact details and give the directory to a trusted friend of relative in case of an emergency; stay on top of incoming mail; take advantage of technology, such as scanning documents and saving them to disk.
Step 2: Implement a strategy for incoming documents
Degree of difficulty: Easy
Once you've tamed the financial paperwork you already have, you also
need to develop a strategy to keep incoming documents from getting out
of control. Attending to your mail each day takes only a few minutes and
goes a long way toward keeping you out of the mess you just dug yourself
out of.
As you sort through your post, classify it into one of four groupings. Items for further perusal such as magazines and personal correspondence go in one pile, bills in another, and financial statements in yet another. The largest pile is reserved for junk mail, which you'll need to further subdivide into two categories: items you can immediately recycle, such as envelopes, and items you'll need to shred first, such as anything with your personal information on it. (I interpret "personal" pretty conservatively and shred pretty much anything with my name and address on it.)
Step 3: Input your portfolio into an online monitoring tool
Degree of difficulty: Easy to moderate
If you've recently organised your financial statements, you should be in
good shape to get started on this next task: inputting your portfolio
into an online monitoring tool so you can track your performance and
troubleshoot any problem areas. Although it takes a few minutes to do
this, once you have your portfolio set up online it doesn't have to take
a lot of maintenance and will save you a lot of trouble later.
Begin by collecting your most recent statements for each of your holdings. You'll need the name of each holding as well as its most recent value. From there, the easiest way to aggregate your holdings for online monitoring is to go to Morningstar's Portfolio Manager on the Tools cover page of Morningstar.co.uk. You'll need to register to use this tool, but don't worry registration will only take a few seconds and is completely free.
You'll be asked to decide whether you want a Transaction Portfolio or a Watch List portfolio. The Watch List portfolio gives you a quick and easy way to store a current snapshot of your holdings and monitor today's positions on an ongoing basis. The Transaction Portfolio provides a more precise view of your portfolio on an ongoing basis and is best suited for those who are apt to make frequent changes to their holdings. Give your portfolio a name and plug in the tickers and the amounts for each of the securities you own; type in Cash to encompass assets in your current or other short-term accounts. You can also sign up for free alerts and portfolio updates so you can find out when something major has changed with your investments. Click on the question mark at the top right of the window for tips and to watch a live demo of how to input your portfolio. If you click X-Ray you'll see an array of style boxes and other asset information that gives a quick and easy-to-understand overview of your portfolio's characteristics.
Step 4: Identify trouble spots at the portfolio level
Degree of difficulty: Moderate
Once you've entered your portfolio on the site, click the X-Ray tab
toward the top of the page. You'll be able to see how much you hold in
stocks (both foreign and domestic), bonds, and cash. You'll also be able
to see the geographic exposure of your stock holdings and how your
portfolio is arrayed across Morningstar's stock and bond style boxes.
Step 5: Identify individual trouble spots
Degree of difficulty: Moderate to difficult
If your holdings generally hold up well to portfolio-level scrutiny,
turn your attention to your individual stocks and funds. You can begin
by looking at performance, both relative and absolute, with a particular
focus on performance over longer time periods. Some planners and
financial pundits provide iron-clad rules for when you should dump an
investment--telling you to sell anything that loses 25% of its value or
lands in its category's bottom third over the past three years, for
example. But I think that's a recipe for poor portfolio returns. Of
course, a prolonged performance slump may be a reason to sell a fund or
stock, but if the fundamentals of the security are still good, buying it
in the dumps can be a profitable strategy.
If you're comfortable digging into fund and stock statistics, Morningstar.co.uk has many of them to help you evaluate why your fund or stock has been a laggard. If you're delving into a fund's weak performance, for example, focus on whether the manager or fund investment style has changed or if its expenses are on the rise. For stocks, red flags might be rising debt levels, an overly lofty valuation, or declining profitability, among other factors.
But by far the most efficient way to get your arms around the myriad issues surrounding a fund's past performance and future prospects, however, is to read our Fund Analyst Reports. By scanning the Analyst Reports for each of your holdings, you can quickly size up whether you should sell or buy more of your holdings.
