Portfolio Management Tools
I am searching for a PC-based software package (or online service) that automatically collects and refreshes online investment data from several different online brokerage accounts and reports it all as one aggregate portfolio. Are you familiar with any sources for this type of software or online service? Thank you in advance for any advice you may offer.
—subs via Web Inquiry
CI Editor’s Response:
Portfolio management tools that are able to aggregate a portfolio from many different sources, like the ones you are looking for, are among the tools most highly sought after by individual investors. There are several online sites that can perform the tasks that you mentioned. Before delving into the question, however, I would like to remind you that websites with this capability all require you to provide your brokerage login information and account number. Although the top online portfolio managers are all very safe, some investors are understandably uncomfortable with storing additional personal information online.
The three top portfolio tracking websites we recommend are Morningstar.com, SmartMoney.com and Wikinvest.com. A piece in Computerized Investing’s Fourth Quarter 2010 issue details the strengths and weakness of each, and it can be found at www.aaii.com/computerized-investing/article/the-top-online-portfolio-managers. In addition, this issue’s Comparison article covers software-based portfolio managers.
Realizing Gains and Losses
My experience with my financial adviser has been that whenever a mutual fund is not performing as expected, we get out of it, realizing the loss and investing in something more profitable. I haven’t seen the same thing happening when the mutual funds are profitable, which means that I’m only realizing losses, while gains are unrealized for the most part. I can set up a percent under which I could get out of an investment. Should I do the same when the investment goes up a certain percentage? For example, if it goes over 20% sell it and cash in the benefits? Thanks for your thoughts.
-vixo777 via Web Inquiry
CI Editor’s Response:
Rebalancing is always a difficult task. Selling due to poor performance is a big consideration. In our own Model Mutual Fund Portfolio, a mutual fund is sold if it violates our performance rule stating that in its worst three-year period (based on calendar years) either the fund must not have had a loss or, in the case of a strong down market, its loss must have been substantially less than that of the S&P 500 and its recovery quicker. This rule is in place to minimize the losses an investor might face in bear markets. Because of this rule, there will naturally be times when selling a fund in the Model Mutual Fund Portfolio will result in losses.
Deciding when to realize gains is an equally difficult task. There is a tendency among investors to let winners “ride”: A mutual fund that is doing well will be left alone, and the investor will not realize any gains. There are several ways that you can implement rules to make sure you are taking some gains with your losses.
First, investors all know that diversification is a big part of sound, long-term investing. In theory, an investor can be well-diversified with just one total-market mutual fund. However, many investors use separate mutual funds for small-cap, international, and other segments. When certain mutual funds are doing well, they will represent a larger portion of an investor’s portfolio than originally intended. This would be a good time to look at trimming the position and realizing a gain. Furthermore, holdings in a value-oriented mutual fund can gradually rise in price until the fund is considered growth-oriented. You may also use this as a chance to trim or exit a mutual fund and realize a gain. In short, rebalancing periodically will inherently force you to sell winners, thereby allowing you to realize gains.
Using AAII’s Stock Screens
I’ve been looking for 30 minutes on AAII.com for information on how I should invest in order to duplicate the performance of one of AAII’s stock screens.
For instance, if a stock continues to appear on a new monthly screen, do I just let it ride, or do I sell it along with the dropped ones and re-buy it to make sure all the stocks have equal dollar amounts for the new month?
Also, if a stock is moving up, is it ever a good idea to keep it—in effect ignoring the new screen? I’m new at this! Thanks!
—Denali via Web Inquiry
CI Editor’s Response:
AAII’s stock screens are simply lists of companies that pass sets of fundamental criteria. There is no additional research that goes into them.
Since some of AAII’s stock screens have shown excellent gains, it is natural that investors may want to replicate the screens. Unfortunately, replicating the screens in real life is not possible. The performances of stock screens are theoretical, and we do not actually hold the portfolios. They are intended to show our members how different approaches perform in varying market conditions. When we calculate the figures, we compare the closing price of each stock at the end of the month to its closing price at the end of the previous month. Commissions, time and price slippage, and bid-ask spreads are not taken into account; therefore, investors cannot achieve the same results.
The best use for AAII’s stock screens is as a tool to winnow down a universe of stocks to find companies that share similar fundamental characteristics.