How to Manage Your Own Portfolio

Much of the investment industry is in the business of making things sound complex so that you feel inadequate enough to turn over control of your money to an “expert”. The plain truth is that paying a premium for professional investment management does not automatically guarantee superior returns especially once you account for fees. But the good news is that building a reliable portfolio is a lot simpler than you may think.

For proactive investors willing to take charge of their own destiny, it really isn’t difficult to create and manage a portfolio using many of the same allocation techniques of the pros. By doing it yourself you’ll not only stay in full control of your finances but you’ll also save a good amount of money in the process. And even if you enlist a trusted adviser for assistance, understanding how the portfolio they manage actually functions will do wonders for your investing confidence.

Not sure where to start?  Here’s what you need to do:

Learn a few simple investing principles

There are lots of different investing methods out there and some of them are pretty intimidating. But while complicated systems requiring lots of information, attention, and time may work fine for some people they’re not necessary to be a successful investor. 

Portfolio Charts focuses on sophisticated but low-key index investing strategies that only require you to purchase a handful of index funds and rebalance your portfolio once a year. If you can follow a recipe, you can manage your own portfolio!

To learn the most important concepts, try visiting the Insights page, scrolling down to “Investing Insights”, and selecting the “Beginner” category. The resulting list of articles should give you a good idea about how index investing can help you achieve your financial goals.

Find a portfolio that meets your needs

This site is designed as a repository and testing resource for all kinds of portfolio ideas, and the Portfolios section is a great place to browse the many good recommendations of various experts.

Study the charts, look at the data points such as the long-term returns and deepest drawdown, and find something that resonates with you. For things that look interesting, take the time to read the books and source materials offered by the original authors. By understanding not only why you are attracted to a certain portfolio but also how it works, you’re already far better off than most investors.

If you want to tinker, you can also play with the interactive Charts to study how changing ingredients may affect the taste of the final recipe. There’s no better way to learn how certain asset combinations work in practice than to watch the numbers change with new inputs.

By the way, take your time and don’t stress about getting your portfolio perfectly implemented when you’re new to investing. A great way to start any portfolio is to first buy a large cap blend stock index fund, as that will be a core component of almost any other asset allocation you grow into. As you accumulate more money and learn more about how the markets work, you can look at new assets to diversify your holdings and move towards a long-term asset allocation goal.

Open a brokerage account

The funds you need to purchase are held and traded at a financial intermediary called a brokerage. Think of it as a special type of bank that does all of the legwork for you to buy and sell stocks from various companies without you having to call them all up individually.

There are many good brokerages out there, but a few of the most popular are Vanguard, Fidelity, Schwab, and TD Ameritrade. After you open your account, transfer the money you’d like to invest from your bank account to the brokerage account and you’ll be ready for the next step.

Purchase the necessary index funds

Let’s say you’ve decided the Three-Fund Portfolio is for you. The next step is to purchase the necessary index funds in the right proportions. The Asset Allocation section on each portfolio page explains the recipe and all you have to do is combine the ingredients. In this case, you need 48% Domestic Stocks, 12%% International Stocks, and 40% Intermediate Bonds.

Follow the links from any portfolio or chart, and they will take you to specific Assets pages where you can find appropriate ETFs that you can purchase. Always do your own research and verify the fund info before spending your own money, but the fund list should give you a big head start.

Once you find the right funds, purchase them through your brokerage in the percentages required for your portfolio. If you find that process tricky, call your brokerage and they’ll be happy to help. Congrats — You just built your own portfolio!

Rebalance once a year

Despite the impression you may get from reading the financial news, the best way to manage your portfolio is generally to ignore it. Remember, you’re already far better off than the vast majority of investors because you selected an asset allocation with your eyes wide open to its historical returns and volatility, so you can rest easily knowing that you made a well-educated decision. Markets go up and down all the time, and your asset allocation will passively do its job protecting and growing your money with no hand-holding required.

The one thing you need to do is check it once a year to see if any of the assets have deviated from your target percentages. If they have, then it’s time to rebalance. You can do this in one of two ways. First, you can use new money you saved throughout the year to purchase new shares of the funds that have dropped below their target percentage. And second, you can sell shares of the funds that did very well to purchase more shares of the funds that did not.

Be mindful of taxes

One thing to keep in mind is that if you’re investing in a taxable account (not an IRA or 401k), selling funds will impact your taxes. That’s why I recommend first buying shares with new money before you sell anything. And when you do need to sell, be sure to understand the tax impact of any change before you make it.

That may sound intimidating, but on a positive note there are many ways to reduce taxes by smartly managing your portfolio. If you find this part confusing, this is a good situation to see a tax adviser. But once you do it a few times, you’ll get the hang of it.

Enjoy your life

Find an appropriate portfolio for you, purchase the required index funds in a brokerage account, and rebalance once a year. It’s really that simple. But it’s also important to keep things in the proper perspective, as the ultimate goal transcends money.

No matter whether it’s pursuing a rewarding career, spending time with family, or just doing your own thing, life is about so much more than stressing about markets. Find the right portfolio that puts your investments on autopilot, and you can focus your energy on the things that truly matter.

What matters to you?

And how can your financial choices empower you to achieve your goals?

Answer the first question, and you’ll have the right mindset to succeed. And answering the second question is what Portfolio Charts is all about.

Happy portfolio hunting!

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