Portfolio Management Software Programs
by John Bajkowski
Three consecutive down years for the S&P 500 have taken their toll on investors portfolios and dampened the desire of investors to even look at their portfolios. However, ignoring your portfolio can have a detrimental long-term impact on your financial goals. The performance of different investment assets and stock segments has varied dramatically recently and may have left your portfolio out of balance.
Portfolio management systems help investors by tracking the performance of individual securities, the interaction of the securities in your portfolio, the allocation of assets within your portfolio, and the overall performance of your portfolio. They also function as important accounting systems that track the income and purchases and sales of your portfolio holdings and help calculate the tax liability of your portfolio actions.
In this article
- PRODUCT COMPARISON
- YOUR SHOPPING LIST
- SECURITIES/ASSETS HANDLED
- TRANSACTIONS HANDLED
- PERFORMANCE REPORTS
- DATA SUPPORT
- EASE OF USE
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Portfolio management systems can be broadly categorized as three types: disk-based, Web HTML-based, and Web applet-based.
Disk-Based: Most sophisticated system. A program is installed to your hard drive, where all analysis takes place. Security price updates are usually made via the Internet. Users must pay for software and possibly for on-going support and updates.
Web HTML-Based: Least sophisticated. Most common type of Web-based service. System is run entirely within your Web browser and reports are limited to what is displayed within your browser. These systems are mostly free of charge and widely available on the Internet.
Web Applet-Based: Users download a small program know as an applet from a Web site. This applet is installed on your hard drive and analysis and report generation is performed locally on your PC using data from an Internet feed. Typically free of charge.
This comparison examines software-based portfolio management systems geared toward the typical individual investor. All of the software programs have Windows-based versions, while Quicken is the only one to offer a Macintosh version. We examine Web-based approaches in a separate product comparison (see the Computerized Investing area of AAII.com). Overall, we still feel that neither type of Web-based portfolio manager can yet replace the software-based systems. Web-based services have limited capabilities for reporting on realized gains and losses and investment income, and return calculations are normally limited as well.
The Web-based tools offer speedy data and news retrieval and are best considered as a companion or compliment to your software program. They are very helpful in keeping you abreast of what is happening with your portfolio and notifying you of any events that might affect it.
YOUR SHOPPING LIST
The comparison grid details the features and functionality of each program. This article touches on the primary factors to consider when selecting a portfolio management tool and includes general descriptions of each of the programs.
When shopping for a portfolio management program, it is best to develop a shopping list or checklist of features to consider. These features include:
- securities/assets handled,
- transactions handled,
- reporting strength and flexibility,
- data updates, and
- ease of use.
When the issue of price comes into question, one needs to look beyond the retail price tag. The time spent learning how to use a program, configuring it to your data source, and entering in your pertinent trading histories and individual security information should be considered as part of your overall cost. These three issues alone far outweigh the importance of the retail price of a program in the long run. Therefore, take your time in selecting a portfolio management application. Make sure you are making the correct choice for your needs. If you simply go out and buy the program with the most number of checkmarks in our grid, you may find it still sitting on a shelf collecting dust two years from now because it was too difficult to use and really did not meet your needs in the first place.
Consider these cost issues now before investing your money and, more importantly, possibly wasting your time. When analyzing your situation, consider not only your current needs, but any possible future needs as well. If a demo of the program you are interested in is available, be sure to get it and test drive the program. Often the cost of the demo can be applied to the purchase price. Most of the program vendors in this comparison offer free demos downloadable at their Web sites; this is noted in the comparison grid.
When looking at the scope of securities accommodated by any prospective program, consider not only the types of securities or assets that you currently hold, but also those securities you might want to purchase in the future. All programs cover the basic security classes—stocks, bonds, mutual funds, and cash. Figure 1 and Figure 2 illustrate the security types handled by the Quicken programs.
Some programs will specialize in one area, such as mutual funds. While the program in question may cover one area well, it might be difficult to track other types of securities should the scope of your investment holdings expand.
If your portfolio includes unusual securities or assets, such as derivatives, pay close attention to whether or not the program handles them. Also, other sections within the comparison grid relate to security and asset coverage: Transaction types, security lot assignments, reports, and even data services can affect how you track, organize, and analyze your portfolio.
Any solid portfolio management program should also allow you to measure the diversification of your holdings. These programs can sort your portfolio into various categories in order to measure diversification. Some programs even measure the diversification within a particular asset class. For example, you may want to examine the sector or industry breakdown of your stock portfolio or the state-by-state makeup of a municipal bond portfolio.
The transactions supported by the program are closely related to the types of securities that the program is designed to handle. Make sure that any potential program includes all the relevant transactions you might require. All the programs compared here handle standard transactions such as buy/sell and cash dividends. However, the ability to handle short sales and return of capital are key areas where the programs vary in their coverage. Figure 3 details the transaction types supported by Captool.
Related to the issue of transaction is the ability to specify security lot assignments for any given transaction. Security lot assignments are detailed in the comparison grid immediately below the transactions section. This is an important feature, especially to those interested in tax liability issues and tracking performance. (A lot is the total number of units involved in a given trade.) If you reinvest dividends from your mutual funds and stocks, you will find yourself tracking numerous lots over a long period of time. Any solid portfolio management package will automatically match buy and sell lots for different accounting strategies for the purpose of reducing ones tax exposure. These strategies include: first-in-first-out (FIFO), average cost, and specific lot. Finding an application that handles all three lot assignment methods is key when deciding on a program. Looking at Figure 4, Quicken supports calculation of average cost basis as well as automatic calculation of FIFO, last-in-first-out (LIFO), maximum capital gain, and minimum capital gain.
Reports allow you to analyze your portfolio and investments. The seven applications vary widely in the types of reports they provide as well as in the strength and flexibility they offer. Again, check to see if the programs that you are considering have the types of reports you want, but also look at other reports offered that you do not currently use in your analysis. They might enhance the overall evaluation of your portfolio.
While you want to be sure that a program provides enough flexibility and functionality to complete your current task list, consider possible future needs with regard to securities and transactions handled along with reporting capabilities. Doing so now will save you time and effort down the road.
The current holdings report lays out the composition of your portfolio. It is a basic report that indicates which securities are in the portfolio, their original cost, current value, gain or loss, and perhaps some security statistics such as dividend yield, price-earnings ratio, or beta. A current holdings report for Portfolio Record Keeper is shown in Figure 5.
The holdings by lot report breaks down the composition report into finer increments, indicating each purchase at a specific date and price. This gives a clear, detailed history of your transactions and provides guidance for selecting which lots to sell to manage taxes. In Figure 6, you can see that Investors Accountant allows users to mix open or closed positions in its holdings by lots report.
Cash portfolio status reports display the cash balance tied to the holdings within a portfolio. This report is helpful in determining the portfolios security purchasing power.
Tax schedules pertain to the Schedule B and Schedule D reports. Designed for computing interest and dividends received from a portfolio, Schedule B reports allow you to estimate tax debt (or credit) before year-end statements arrive. Tax Schedule D reports compute long- and short-term capital gains and group assets that will yield capital gains with tax liabilities. If you are going to rely on your portfolio management program to produce these schedules, make sure that adjustments can be made should tax laws change regarding factors such as short- or long-term holding periods in the future. Ideally, the program should also track foreign tax withheld on your securities to help ensure that proper credit is accounted for when filling out your taxes. Tax reports are provided for a given tax year, so programs generally include a dialog to select a given year to report upon. Figure 7 depicts a capital gains report using Microsoft Money.
The projected cash flow report serves as a forecast of the expected portfolio cash income from dividends, interest, and bond maturities. This report is useful for estimating retirement income and allows you to structure asset holdings based on future needs.
The issue of flexibility comes into play with the options of customized reports and batch processing capabilities. Customization choices range from content-related, such as time period, to cosmetics-related, like column and row headings. Batch, or group, processing simply involves completing multiple print jobs of different types of reports at one time.
The section of the grid entitled Performance Reports depicts the various ways a program summarizes how well your investment holdings have fared. A basic part of the portfolio management process is to determine and analyze performance and, therefore, this section should be studied carefully. The number of performance reports offered helps some programs stand out from their competitors. The level of performance reports available is discussed in the brief program summaries that follow.
A program that provides reports for securities, industries, and asset classes will not only give you the performance of each segment, but also will provide portfolio allocation analysis. Some programs allow for an examination among various asset classes—such as domestic or foreign equities, bonds, or cash—while others provide industry breakdowns.
It is also important to find a program that has the ability to produce reports covering single and multiple portfolios. You will want a program that addresses the diversified aspects of all your holdings for all your portfolios, rather than one that can only concentrate on a single portfolio.
All of the programs in this comparison provide a return for the current holding period, which examines gain or loss from the time the security is purchased. Most programs now also offer returns for designated periods, called between-period returns in the grid. Programs that feature the ability to designate time periods allow you to monitor security performance during a known market environment, as well as to examine all of your securities over the same time period. To designate time periods, a program must be able to store snapshots of your portfolio holdings and values at specific points in time and not just the current positions and prices. Some programs, such as Reeally!, can automatically create a price history from free Internet data sources and use the history to display portfolio returns over time. Figure 8 shows Reeally!s interactive window for displaying historical portfolio performance.
Portfolio return reports paint the clearest picture of how well your investment holdings have performed. However, it is important to understand which type of return is best for the individual investor. Both a value-weighted (also referred to as a dollar-weighted) internal rate of return (IRR) and a time-weighted rate of return can be calculated by portfolio management software. But which one is right for your analysis?
For the individual investor looking to gauge the true performance of a personal portfolio, the internal rate of return is desired because it represents the rate of return earned by your investments. The internal rate of return is both a value-weighted and time-weighted calculation because it considers the time when inflows and outflows are made to the portfolio, the amount of these flows, and the combined impact upon the overall rate of return. The time-weighted return is most often used to analyze the performance of investment decisions made by a portfolio or money manager. The time-weighted calculation directly ignores the impact of any cash added or removed from the portfolio because the manager most often does not have control over such events. However, not only does an individual have control over these inflows and outflows, but they impact the portfolio rate of return and portfolio value. Look for applications that offer both returns, but be sure to check for the internal rate of return. Captools portfolio report presents both the time-weighted return and internal rate of return, as illustrated in Figure 9.
When a program provides tax-adjusted returns, this simply means that it generates pretax and aftertax returns. These programs automatically calculate the tax liabilities of your transactions and report their impact on the rate of return of the securities and portfolios.
Programs that follow AIMR standards adhere to the accounting and presentation standards established by the Association for Investment Management and Research. These include: calculating a total rate of return, providing year-by-year rates of return, and allowing for consideration of portfolio management costs.
Useful reports are a key consideration in selecting a program. If a demo of the program you are considering is not available, request that the company send you printouts of the available reports using a sample portfolio.
It is common for portfolio management programs to offer a direct connection to an on-line service for price updates. The comparison grid indicates the information services supported by each program. The grid also shows the various formats supported for exporting and importing information. In most cases, this refers only to the transfer of security price information. Quicken and Money, however, provide extensive transaction updates to brokers and bankers.
EASE OF USE
The great intangible aspect involved in selecting a portfolio management program centers around how easy the program is to use. In general, there is a trade-off between a simple, easy-to-use interface and a strong set of portfolio management and analytical features. The more advanced programs seem to bring along an extensive interface with their highly evolved skill levels.
When considering how easy the program is to learn, also consider how easy and quick it is going to be to perform your normal maintenance tasks, such as entry of purchases and sales and the reinvestment of dividends. When falling in love with a programs extensive coverage, remember that a longer learning curve will most likely be involved.
No area of analysis warrants getting a demo more than portfolio management. You can check out the programs interface and consider how easy it is to maneuver around in the program. Few demo versions come with written instructions, so browse the Web site for any help files and try E-mailing questions to the vendors technical support staff to test them for possible future reference.
CAPTOOL INDIVIDUAL INVESTOR
Captool Individual Investor is an excellent choice for the sophisticated investor looking to monitor and evaluate their portfolio holdings. Captools offers a number of versions of the program ranging from the Individual Investor version priced at $249 to the Professional release that sells for $5,000. Captool Individual Investor comes with 12 months of support and program updates. Support and updates after this first year are $60 annually.
Captools blanket coverage of securities and transactions is the most complete of all the programs surveyed. Over 70 transaction types are supported that cover virtually any investment situation that an investor will encounter.
Report capabilities are extensive and flexible. Captool ships with over 60 report templates that draw on different data fields and portfolio statistics. Captool reports also provide you with the option to incorporate graphics such as allocation pie charts and valuation growth charts.
The program can examine the performance of individual securities, security groups, and the overall portfolio for user-designated time periods. The performance report can present the internal rate of return, time-weighted return, or simple profit on an annualized or total gain basis. Users have the option of looking at returns on both an aftertax and pretax basis and even specifying any fees or commissions paid over the reporting period.
The program utilizes a series of spreadsheet-like windows for users to enter transactions, review securities and security holdings, and switch among various portfolios.
Built-in scripts allow you to download current and historical quotes from many popular investment Web sites. It takes some time to learn how to use Captool to take advantage of its extensive set of features. Captool goes well beyond basic recordkeeping—this is a powerful portfolio management and performance evaluation tool.
Hamilton Software offers a number of portfolio management systems and even more basic programs to compute the rate of return of ones overall portfolio. Investors Accountant represents the top-line of their portfolio management programs. Investors Accountant tracks all records for any type of investment for an unlimited number of portfolios and produces a wide range of reports and charts.
The program covers all the bases with regard to holdings reports and features performance reports for your securities and industry groups. Investors Accountant can analyze your performance using both an internal rate of return and a time-weighted rate of return. Return reports can be presented before or after taxes. The program supports three methodologies for calculating the time-weighted rate of return.
The reports can measure performance between any two points in time. Recent program updates offer more flexibility in calculating and reporting periodic performance (monthly, quarterly, annual) and composite performance of portfolio groups. Group composite performance can be determined as either Asset Weighted or Asset Plus Cash Flow Weighted, and an Aggregate method of calculating group composite performance allows inclusion of portfolios with differing time spans.
Nice extras include automatic alert updates and a graphical analysis package. The alerts signal you when price, value or percent limits are hit, just before dividend dates, and when options are about to expire. Security performance and market trends can also be followed through the programs graphical analysis, which includes moving averages and price-volume.
Investors Accountant is a powerful program with a rich set of features and reports that place it among the upper class of applications in its field.
MICROSOFT MONEY 2003
Money is one of two multi-dimensional programs included in this comparison—Quicken being the other—that is designed to assist individual investors with the full range of money management activities. Money 2003 provides portfolio tracking measures and handles basic personal finance tasks as well.
Money and Quicken software have always shared a similar look and feel. Another similarity is that Money, like Quicken, comes in basic and advanced versions. The standard version is designed to assist in the overall managing of ones finances, and the deluxe package includes additional financial planning and tax preparation modules and several other add-on tools. Both Money programs feature tax integration capabilities with TaxCut software from H&R Block.
Money tracks a standard set of securities such as cash, stocks, mutual funds, and bonds and the Deluxe version has added an option wizard tool for creating and tracking equity and index options. The program has an exercise wizard that guides you through the process of exercising existing options. Overall, Money handles a fair amount of securities and offers extensive coverage of transactions.
Most of the basic holdings reports are present and the performance report options are rather substantial: security, industry, and asset class performance reports and a time-weighted rate of return are available. Reports can be generated between periods and for multiple portfolios. Reports can also be customized by the user and run in batches.
Money offers strong integration with financial data from CNBC on MSN Money (investor.msn.com). This top-rated comprehensive one-stop investment center features stock and fund research, company reports, current and historical price and financial data, market news archives, advice, and educational materials.
Money Deluxe is a solid program that is as easy-to-use as ever. Money will suit the portfolio needs of the average investor and help in the research and analysis of holdings.
NAIC PORTFOLIO RECORD KEEPER
Portfolio Record Keeper (PRK) is a comprehensive portfolio manager that handles the complete roster of securities including cash, money market funds, U.S. government and agency bonds, tax-exempt bonds, corporate bonds, preferred stocks, mutual funds, common stocks, and options and their related transaction types. It has the built-in ability to track investment club assets as well as standard portfolio and account types.
PRK tracks an unlimited number of portfolios, each with an unlimited number of securities. The program provides over 20 reports that summarize your investments: current holdings, unrealized gains/losses, sold positions & realized gains/losses, income received, capital gain distributions, commissions paid, security allocation, portfolio diversification, portfolio cash flow projections, tax basis, performance measurements, asset maturity schedule, transactions ledger, and more. These reports can be customized and run in batches. Both the value-weighted internal rate of return and time-weighted returns utilize AIMR-compliant methodologies. Multi-portfolio reports can be generated between periods, but cannot be adjusted for taxes—the only real miss with this program.
PRK features a price alerts monitoring system that automatically checks updated prices against user-specified high/low price targets and sends a warning message notifying the user of the event. These alerts also provide users with additional data regarding the affected security.
PRK is clearly among the leaders in this category and should be on the short list for many investors.
Portfolio Analyzer, the other member of the Hamilton Software family, fills the role of a more basic portfolio management system.
As an elementary portfolio manager, Portfolio Analyzer features similar security and transaction coverage as that of its more advanced companion, Investors Accountant. The major differences come into play with the reports and the versatility of those reports. Portfolio Analyzer produces security allocation, single and multiple portfolio, and value-weighted return performance reports. Performance can be measured only for the time period that the security is held.
Quicken aims to be a complete personal finance assistant with checkbook management, budgeting, and tax planning. Two versions of Quicken are available—Deluxe and Premier.
Quicken, like Microsoft Money, is both a portfolio management program and a personal finance application. It prints checks, categorizes all spending, and contains functions for on-line banking and bill payments, as well as tracking bank and credit card accounts.
Quicken includes the basic holdings reports and the performance reports for security and asset class for single portfolios only. These reports can be customized and generated between periods. Quicken only generates a value-weighted rate of return.
The Premier program includes all that the Deluxe version offers, as well as several additional educational aids, analysis modules and reports—including a module to help improve aftertax returns, step-by-step investment tutorials, modules to analyze the impact of your sells on both a tax-basis and investment goal basis, and tax-related Schedule A, B, and D reports.
Intuit includes an analyzer that helps to describe your portfolio holdings, performance, asset allocation, risk profile, and tax implications. Support for IRAs, employee stock purchase plans, and short sales is also provided.
Users can download bank, credit card or brokerage transactions from a select group of institutions into Quicken instead of typing them.
Quicken offers a basic portfolio manager for tracking investments and, at the same time, offers assistance in keeping up with various personal finance issues. Investors considering Quicken 2003 should obtain the Premier version, which provides a wider range of analytical tools.
Reeally! from Mantic Software offers quality features that help place it among the top programs in the field. Reeally! comes in two versions, Standard and Pro. The Standard program is for portfolios consisting of only stocks and mutual funds and costs $150. The Pro version is the more practical of the two, supporting portfolios with a wide variety of assets. It is priced at $525.
Reeally! Pro offers solid support of securities including bonds, options and futures. However, the two programs have several limitations when it comes to basic security identification. Reeally! does not provide CUSIP listing functions nor does it allow for SIC industry code classifications.
Transactions handled are also quite solid, with Reeally! offering the complete array of options including short/cover, margin, and receive/deliver. The strongest feature found in the Reeally! program is the programs reports and returns module, encompassing basic holding reports, performance returns, and graphical performance charts.
All the standard holding reports are present. The returns module also provides detailed charting capabilities. Users can graph, compare, and print performance measures for an entire portfolio or any filtered subsets—which can be viewed side-by-side. Performance graphs track gain or loss vs. cost basis or cash committed, rates of return with optional annual performance bars and trailing 12-month rates of return. An in-depth discussion of the various returns and graphs is provided in the programs Help system.
Reeally! is a very good portfolio management program that is quite strong on functionality.