Get a total portfolio picture and stay calm

Photo of Doug Morris, Sharesight By Doug Morris, Sharesight

min read

Four key factors you must keep tracking closely when investing.

October was a tense month for investors worldwide. There is already much superstition surrounding this month and coupled with media doomsday forecasts of crashing markets and an escalating trade war between China and the US, it is no wonder investors were on the edge of their seats.

Since the beginning of the Dow, October has consistently taken the crown as the month with the most volatility, even when you remove the crashes of October 1929 and 1987.

Even when expected, I understand that volatility can make anyone anxious and leave some wishing for the good old days when you simply paid money into a superannuation fund and in however many years it sprouted into a large sum, all set for retirement. Although this sounds like a dream, it is sadly no longer an actuality.

As highlighted with findings from the Royal Commission probe into the superannuation sector, it is best that individuals take ownership of their own investments. In my view, the old system is no longer working as well for us.

How does one keep from losing their cool while the financial markets seem to be going rabid? Easy. Understanding how your portfolio has been performing overall, not just in the past month, is the best antidote to help you remain calm and make the best decisions. Here's how:

1. Annualised total performance

Keeping track of your annualised total performance is essential because it helps to understand how investments are doing, thus helping to make informed (rather than impulsive) decisions.

You must track everything. If asked what your online brokerage account and superannuation and employee shares are worth, could you give an accurate figure? Often, even those investors who “think” they know how they’re doing, are not calculating their true returns, because they rely on one or both of the following:

a) Relying on their broker

Broker performance figures are often just the difference between what you paid and the latest market price.

  • They do not factor dividends (and dividend reinvestment plans) into your returns
  • They do not factor in brokerage fees or currency fluctuations
  • They do not provide a total annualised return (a 20 per cent return over five years is really only a 4 per cent return per year)


b) Relying on a spreadsheet

I know that tracking investments on a spreadsheet is tedious and prone to errors. Tracking investments on a spreadsheet does not guarantee you are calculating true returns.

We also used to love spreadsheets, but technology has enabled us to improve these old systems. Isn't it results that we are all looking for? Replace your manual and labour-intensive spreadsheet with portfolio tracking software that provides:

  • Automatic updates
  • Your true performance
  • A visualisation of your portfolio

2. Dividend yield

Dividends make up part of your performance returns and if you are not tracking them, you are not getting the full picture. This is especially true if you participate in a dividend reinvestment plan (DRP). Amazingly, most online brokers do not factor dividends or DRPs into their return figures.

To be a successful investor with dividends in your portfolio, you must understand the following:

  • How to properly track the funds you receive
  • The tax implications
  • The impact of dividend reinvestment

Sadly, tracking dividends is labour intensive. Again, smart tracking technology is the solution as we can now automatically receive dividend information from the share registries, including tax information, and you can enrol an entire holding into a dividend reinvestment plan, or reinvest specific dividends. Nothing is left open to error.

3. Asset allocation

Reviewing the impact of your asset allocation lets you understand the true drivers of performance, be they stock selection, asset allocation or exposure to certain countries, sectors or industries. Asset allocation also helps to easily compare and contrast the winners and losers in your portfolio.

Diversification is an effective way to manage risk/return, limit exposure to any single asset and align a portfolio with the level of risk appropriate for your situation. You may be in a position to take riskier growth assets, or you may need to favour an asset mix of cash and defensive holding.

You should review your asset allocation across various dimensions, including market, sector classification, industry classification, investment type, country, etc.

4. Benchmarking

Benchmarking a portfolio allows you to determine its relative performance compared to the overall market during a particular period. You will understand whether you “beat the benchmark” or “beat the market”, and if not, it allows you to consider what else you could have done with your money.

For example, if you want to track the performance of your portfolio against the ASX 200 index, select an ETF that is modelled on that index (such as ASX: A200) and provides a true apples-to-apples comparison.

Do not compare your portfolio against the index prices you see in the news.

Ultimate control

Getting an accurate picture of the health of your investment portfolio can be tough with so many moving pieces to shuffle. Left to spreadsheets and third parties, you are exposed to an incomplete picture and poor decision making.

Combine the four tactics above with portfolio management technology, to gain ultimate control of your investment.

About the author

Doug Morris is the CEO of Sharesight, an investment portfolio tracker that provides reliable tax and performance reporting to self-directed investors and financial professionals.

Sharesight does not provide tax or investment advice. The buying of shares can be complex and varies by individual. Seek tax and investment advice specific to your situation before acting on any information in this article.

From ASX

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