Portfolio Management–How often to measure (i) Look at your positions every day

The short answer

It’s important to distinguish between looking at prices, which I think you should do every day for any individual stocks you may own, and measuring performance of your actively-managed securities (including ETFs and mutual funds) vs. the benchmark you have selected.  Under normal circumstances, I think you should do the latter only once a month or even once a quarter, unless you think something is going seriously wrong with your investment plan (how to tell if something is really going wrong will be the subject of a later post). Continue reading →

Portfolio management–why measure performance?

Two reasons to measure performance

There are two general reasons why it’s essential for any investor to periodically and methodically measure investment performance:

–to protect and build your financial assets, and

–to develop your skills in making investment judgments.

These reasons hold whether you decide to manage your money directly or elect to hire a financial planner of some type to help you with the process.

Using a financial planner

Let’s start with the financial planner case.  A typical arrangement will entail your agreeing to pay the planner a percentage of the assets under management in return for his/her advice.

This type of arrangement is sometimes called a “wrap fee” account.  The percentage can vary, but in my experience it usually ranges from 1.5%-2.0% of assets.

Until relatively recently, when government scrutiny of these arrangements forced changes, even assets held in money market funds were subject to the full fee.  Today, it’s common to have a lower fee apply to cash or bond assets.  (The planner will typically receive other compensation that is rarely, if ever, mentioned. For example, the planner will receive a “12b1” fee of .2%-.3% of assets per year from the mutual fund companies whose offerings the planner’s clients hold.  A fund company  may also pay food, transportation and lodging expenses for the planner to attend educational seminars held at posh resorts.  This can happen if the planner is a very successful asset gatherer or if he reaches a threshold level of client ownership of the fund company’s products.)

What a hypothetical investor pays a planner

Taking our hypothetical investor with $1 million in equity assets, the yearly fees paid to a financial advisor will be on the order of $25,000.  That’s a new car, a wedding, college tuition at any state university, several lavish vacations–or the carrying costs of a vacation home.  I could go on, but you get my point.  This is serious money.

You owe it to yourself to find out what, if anything, you’re getting for this outlay. Continue reading →