Portfolio Management Software Programs

Every investor needs a portfolio management tool to track investments and generate accurate performance reports, no matter the size of your portfolios. Portfolio management systems allow investors to organize investments, track performance and assess a portfolio’s asset mix and risk levels. Most will also help at tax time. A good system will track buys, sells, dividends, splits and other transactions within a portfolio for a variety of securities. Performance data is measured over various timeframes and most programs will allow users to graph performance and print reports.

This comparison examines the best portfolio management software systems designed to help you accomplish these tasks. Since our last comparison in 2007, Microsoft has discontinued its Money software programs. Portfolio Systems Inc. was bought by Scottrade, who continues to offer their Portfolio Director tool. This tool was always aimed at professional portfolio managers and is even more so now; therefore, it is not included in this comparison. Portfolio Systems Inc.’s Option Money has been discontinued.

Finally, BetterInvesting introduced Investment Account Manager which is aimed at individual investors and replaces the BetterInvesting Portfolio Manager in this comparison.

Types of Portfolio Management Tools

Portfolio management systems can be broadly categorized as three types: software-based, Web HTML-based, and Web applet-based.

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Software-based portfolio management systems offer sophisticated tools, flexibility, and the ability to generate extensive reports. The software programs are installed to your hard drive. Most are downloadable from a company’s Web site as well as installable via CD-ROM. Security price updates are made via the Internet, so an active and high-speed connection will make the software more useful. Most prices are updated on an end-of-day basis via a download that you initiate.

Web HTML-based systems are the most common on the Internet and also tend to be the least sophisticated. The system is run entirely within your Web browser and reports are limited to what is displayed within your browser.

The Web-based tools offer speedy data and news retrieval and are best considered as a companion or complement 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. These systems are mostly free of charge and widely available on the Internet. Over the past few years, these systems have become more useful, but still do not stack up to the software and Web applet-based counterparts.

Alternatively, some on-line services direct users to download a small program known as an “applet” from their Web site. The applet is installed on your hard drive, and analysis and report generation is performed locally on your computer using data from an Internet feed. Applet-based systems are more likely to require a paid subscription that usually provides access to stock and mutual fund data and screening.

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 can also be used with a Mac.

We examined Web-based systems in a separate product comparison (see the July/August 2008 issue of Computerized Investing, available on-line).

While Web-based systems have become more sophisticated, they cannot replace the best software-based systems. Most Web-based services have limited capabilities for reporting realized gains and losses and investment income; return calculations are generally less powerful as well.

Your Shopping List

The comparison grid details the features and functionality of each program. When shopping for a portfolio management program there are certain features you will want to consider including: costs, types of securities handled, transactions handled, reporting strength and flexibility, data updates, and ease of use.

Costs and Time Commitments

Costs of a portfolio management program go well beyond the retail price tag. Time spent learning to use the program, configuring it to your data source, and entering trading histories and individual security information should be considered part of your overall cost. In the long run, these issues far outweigh the importance of the initial price of a program.

When analyzing your situation, consider not only your current needs, but any possible future needs as well. Many vendors will offer demo versions of their programs, usually for free or for a reasonable cost. This is a great way to try out the program before purchasing it. Two of the three programs in this comparison offer some sort of demo (Quicken is the exception). Most demos are fully functional, but may limit the number of portfolios or transactions you can enter.

Securities/Assets Handled

When looking at the scope of securities accommodated by any prospective program, consider not only the securities or assets that you currently hold, but also those you might want to purchase in the future. All programs cover the basic security classes—stocks, bonds, mutual funds, and cash.

Some programs will specialize in one area, such as options or mutual funds. While the program in question may cover one area well, it may not be flexible enough to track other types of securities should the scope of your investment holdings expand.

If your portfolio includes unusual securities or assets, such as options or warrants, pay close attention to whether or not the program handles them. You also need to consider issues related to security and asset coverage, such as transaction types, security lot assignments, reports, and data services (discussed below)—these can all affect how you track, organize, and analyze your portfolio.

Any good 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.

Transactions Handled

The transactions supported by the program are closely related to the types of securities that the program handles. All of the programs compared here handle standard transactions such as buy/sell and cash dividends. However, the ability to handle data points such as short sales and margin is important, and the programs vary in their functionality.

All of these programs have the ability to specify security lot assignments for a transaction. A lot is the total number of units involved in a given trade. This feature can be useful for tax liability issues and tracking performance. Security lot assignments are detailed in the comparison grid immediately below the transactions section.

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 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.

Reports

Reports allow you to analyze your portfolio and investments. The three tools covered here vary in the types and flexibility of reporting. Check to see if your program has the types of reports you want, but also other reports you may 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.

The current holdings report lays out the composition of your portfolio. It is a basic report that indicates (at a minimum) securities held, original cost, current value and gain or loss, and perhaps some security statistics such as dividend yield, price-earnings ratio or beta.

The holdings by lots report breaks down portfolio composition into finer increments, indicating each purchase at a specific date and price. This gives a detailed history of your transactions and provides guidance for selling.

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 tax schedules, make sure that adjustments can be made should the tax laws change regarding factors such as short-term or long-term holding periods.

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 the year to report upon.

The projected cash flow report serves as a forecast of the expected portfolio cash income from dividends, interest, and bond maturities. This is useful for estimating retirement income.

Report customization can be content-related, (such as choosing the time period), or cosmetics-related (altering column and row headings or even font size).

Portfolio alerts let you know when a security has crossed some predetermined price threshold. Such an alert may highlight the need for investigation that might otherwise go unnoticed.

Performance Reports

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. The sophistication of performance reports available is discussed in the brief summaries of programs that follow.

A program should provide reports for securities, industries, and asset classes that include performance and asset allocation analysis. Some programs allow for an examination among various asset classes, while others provide industry breakdowns.

Reports covering single and multiple portfolios are important to address the diversified aspects of all your portfolios.

All programs also offer between-period returns, which allow you to monitor security performance during a known market environment. This means the programs store snapshots of your portfolios at various times.

Portfolio return reports paint the clearest picture of how well your investment holdings have performed. 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.

The IRR tends to be the best gauge because it represents the rate of return earned by your investments. It 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. A time-weighted calculation directly ignores the impact of any cash added to or removed from the portfolio. Not only does an individual have control over these inflows and outflows, but they are also very common with retirement accounts and will have a large impact on the portfolio’s rate of return. With the advent of automatic investing, investors are putting money into the market when it is up (and paying high prices for securities) and when it is down (and paying lower prices). It is important to take into account the various investment prices and holding periods in order to accurately measure your portfolio’s performance.

Tax-adjusted return reports generate pretax and aftertax returns, calculating the tax liabilities of your transactions and reporting the impact on the rate of return.

Programs that follow GIPS (Global Investment Performance Standards, formerly AIMR-PPS) standards adhere to the accounting and presentation standards established by the GIPS Executive Committee. These include: calculating a total rate of return, providing year-by-year rates of return, and allowing for consideration of portfolio management costs.

Data Support

Most portfolio management programs offer a direct connection to an on-line service for price updates. The comparison grid shows the various formats supported for exporting and importing information. In most cases, this refers only to the transfer of security price information.

Programs that support OFX and QFX stand a good chance of importing transaction data from your on-line broker. The Open Financial Exchange OFX allows for the electronic exchange of financial data between financial institutions, businesses and consumers. OFX supports a wide range of financial activities such as banking, bill payments, and investment tracking—including stock, bond, mutual fund, and 401(k) account details.

Most programs need an account number and use the same login and password information you use to access your broker’s Web site. Also be sure to check the accuracy of the imported data as well as which types of transactions can be imported (i.e., just purchases and sales, or dividends, reinvestments and splits as well).

Brokers typically keep a limited history of your data on the OFX server and brokers may vary in the data they make available for download via OFX.

Some applications will allow you to import and export data from Quicken (QIF or PRN formats), as a comma-separated file CSV, a text file TXT, an Excel file XLS, or Captools, a popular discontinued portfolio management tool.

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. Also consider how easy and quick it is going to be to perform your normal maintenance tasks. Demos allow you to check out the program’s interface and consider how easy it is to maneuver around in the program.

The Programs

Fund Manager 9.6

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Fund Manager offers two versions: personal and professional. The personal version costs $69 and the professional version costs $295. Free trials of both programs are available. Along with the trial, the Web site offers step-by-step tutorials for setting up portfolios, downloading or manually entering transactions and generating reports.

The personal version would suit the needs of most individuals—it has flexibility and good customization and allows an unlimited number of portfolios with up to 500 securities per portfolio. The program is not as intuitive as others, but offers great reporting and performance tools.

The professional version allows for up to 2,000 securities in a portfolio and includes additional technical charting tools. You can create technical analysis graphs using various indicators and create trailing stop loss and moving average alerts. The professional version also has the ability to retrieve real-time quotes as well as track wash sales. Finally, it can retrieve historical data on dividends and splits.

Otherwise, both programs are similar; our description is based on the personal version.

You can download transactions from numerous brokerage accounts; however, some data such as purchase price was missing from about half of the securities. You can manually change the data and fix any errors during the import process. You will need to enter your broker site user login and password to use this option.

Perhaps a better way to import recent transactions is to download your transactions in a compatible format from your brokerage firm (most should allow for this) and import the file directly to the program. This provided a more accurate transfer of data.

Asset type (such as small versus large cap) is automatically assigned when importing or downloading, but most of the time we found this to be incorrectly done. You can manually change these labels (as well as add an investment objective for each) by right-clicking on the security name. You can choose from 25 asset types as well as add your own. It is a good idea to adjust the asset labels if you plan to use the program’s asset allocation tools.

You can enter typical transactions (such as buys, sells and dividends) and also create user-defined transactions. Options and futures, interest earned, and commissions paid are also handled, but the program does not handle short sales. One negative to the program is the inability to view all transactions for one security at once. You can view a list of similar transactions for each security (for example, all purchases of shares or all dividends paid).

Reports include a list of current holdings, holdings by lot, tax schedules and the option to create customized reports.

Performance reports include individual security and asset allocation reports, holding-period and between-period return reports, and time-weighted return reports. You can see one portfolio or multiple portfolios in a single report.

Fund Manager is a flexible tool that has good reporting capabilities. The import tools could use some fine-tuning, but overall the product makes it easy to track your investments.

Investment Account Manager

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Investment Account Manager replaces BetterInvesting’s Portfolio Manager from our last comparison. This program is geared toward individuals and offers most of the same capabilities as Portfolio Manager. Investment Account Manager costs $129 and AAII members can receive a discounted rate of $109 (see the Special Offers at the AAII Member Benefits page at AAII.com for more information).

A free 45-day, fully functional demo is available for download at the program Web site.

Creating a new portfolio is simple and the program can take you step-by-step through the process. In addition to traditional securities, you can track options and real estate investments and create user-defined assets. The asset classes of the securities are predefined (meaning small versus large cap). You can also use SIC codes for identifying investments.

You can track buys, sells, dividends, short sales, margin transactions, stock splits, reinvestments, interest, commissions, and bond premiums and discounts.

After you have created a new portfolio (you can create an unlimited number of portfolios with an unlimited number of securities and transactions in each), you can view the current holdings page. This shows your portfolio’s performance year-to-date, and realized gains and losses as well as your current holdings and their values.

You can update holdings by downloading end-of-day prices from the Internet (you can choose the data vendor and some are free) and by downloading transactions from your brokerage account. If you cannot download directly from your broker, you can import transactions via OFX or QFX as well as from Quicken and Captools. You can also enter transactions by hand.

Downloads directly from brokerage accounts tend to be fairly accurate. You will need your broker site login and password as well as account number to use this option. You also have the ability to review the transactions before they are posted to your account.

Reports can be fully customized and can be generated for a single portfolio or multiple portfolios. You can analyze your holdings by lots, view projected cash flows, calculate between-period returns, and use benchmarks for comparison. To calculate various holding-period returns, you will need to download historical prices from the Internet for the time periods you are interested in. This does not take long and those prices are stored in the program for future use.

You can calculate value-weighted and time-weighted returns and view performance by asset class, sector and industry. Each report can be saved as a PDF or printed. The program asks you to back up the data frequently (sometimes to the point of annoyance) but it is a good reminder to do so. The files are backed up to your hard drive.

Investment Account Manager is easy to use and provides comprehensive reporting and transaction tracking at a reasonable cost.

Quicken Premier 2009

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Quicken’s latest version offers a few improvements over the 2007 version. While Quicken is better known for its budgeting, bill paying and overall financial planning tools, the program also provides investment analysis tools.

The Windows version of Quicken 2009 costs $89.99 and can be downloaded via the Quicken Web site or installed via CD-ROM. The Mac version has not been updated since 2007, costs $69.99, and can be installed via download or CD-ROM.

The focus here is on the newly updated Quicken for Windows. The Mac version of Quicken is inferior to the Windows version in many ways. It focuses more on the bill paying and budgeting aspects of the program, with little emphasis on the investing tools. Report customization and generation are also far superior in the Windows version. You have more options when downloading and importing transactions from brokerage firms as well. Finally, the Mac interface is much less user-friendly.

Intuit offers a free version of Quicken that includes only the bill pay and simple budget aspects of the program. For those interested in the portfolio management tools and reports, there is no demo available.

To create and track portfolios, you go to the Investments section. Entering new accounts is fairly simple with the program’s wizard. You can download transactions directly from your bank or brokerage firm as well as manually enter your holdings and transactions. You must register your program before you can download current prices for holdings.

Quicken tracks cash, stocks, bonds, mutual funds and exchange-traded funds ETFs. It does not handle stock options, real estate investments, or annuities, and does not allow for user-defined securities. Each security is labeled by asset class, but you can change those entries later.

Downloading transactions from your financial institutions requires usernames and passwords but you can also go through a financial institution’s site and download directly to Quicken. Most sites have an option called “download to Quicken” which will place the transactions into the open account in the program.

Many Quicken users have complained of problems downloading prices as well as transactions. While the stock data we downloaded was as accurate as any other program, the mutual fund data had more issues. Current positions were not downloaded properly, making importing any sale transactions of those shares difficult.

Manually entering transactions is simple, and if you have limited transactions, this is probably the best way to go. When selling shares, you can allocate specific lots to sell and track interest, dividends, capital gains, stock splits and commissions.

The performance reports are mostly found within the Investments area, but a few are found under the Net Worth, Planning and Tax tabs. Those will add your banking and credit card accounts to the mix for overall net worth analysis.

Performance reports are somewhat customizable by date (although you must pick from predefined ranges) and by portfolio combinations. Asset allocation charts show diversification by assets, security and industry. You can also create a target allocation and compare your actual allocation to it.

The Tax tab provides a number of tax reports with the ability to export the data from Quicken into Intuit’s TurboTax program.

Conclusion

Overall, these three programs offer good analysis and tracking tools that can meet the needs of many investors. The best way to decide which program is for you is to try the demos (when available). You can see how well the import functions work for your accounts and how easy it is to enter new transactions, print reports, generate allocation and performance data and more.