Tracking Tool For Our Investment Performance

Ok I have finally put together what I think is a pretty decent snapshot of our investments. Still some work to be done, but it’s a vast improvement in transparency over anything I have published before.

I have been tracking it for a little over a month and its working pretty good so I am going to start publishing monthly along with our net worth and tweak it along the way.

Background
MS Money sucks at tracking investment performance (IMO). Yes it can tell you your starting value and ending value and a whole bunch of stuff in between that is worthless. However especially with dividend reinvestments in the mix I wasn't able to get the picture I want to see.

What Do I Want To See?
1) I need a simple way to benchmark my performance against market indexes. Yes my investments sometimes perform well, sometimes poorly, but I need to start establishing a track record. If I am not consistently beating the market indexes then I need to think about concentrating more assets into market index investments.
2) I want to see the monthly return on each investment and in aggregate in a consistent manner.
3) I want to be able to compare my original cost basis (not including the cost basis via reinvested dividends) to the current value to see my overall gains or loss for the investment.
4) I would like to know in dollars how much I have gained or lost at the end of the month after you factor in dividends, new investments, etc.

Creating and Maintaining My Investment Snapshot Report
I created an Excel spreadsheet and used a web query to pull stock prices off web pages.

To maintain:
1)With one click I can update stock prices on the report.
2)I need to track dividends and dividend reinvestments and update them on the spreadsheet
3)I need to track additional investments and sales and update them on the spreadsheet

Still time consuming, but it gives me what I want. I think when time is tight I won't be able to keep up with all the transactions and will just have to roll them over to whatever month I have time to plug them in. My goal to make this manageable for me is to consolidate my investment accounts as much as possible. We have 15+ accounts at Vanguard, T Rowe Price, Sharebuilder, ESPP, and a number of individual DRIP accounts. I would like to get this number to less than 10 accounts by the end of the year.

The Downside to This Investment Snapshot Report
It’s so easy to open in the morning, click to update the stock prices and see to the penny how much we gained or lost over the past day. It is almost addictive and why I have resisted doing this in the past.

However, at this point I think the pros out weigh the negatives at least in the short term. I need to start measuring our performance and compare it to the market. I suspect our investments have trailed the market overall, but haven't found a consistent way to measure our progress especially with all the transactions that occur each month.

Benchmarking Against the Market Indexes
Right now I only have the Vanguard Total Stock Market Index on the report as a benchmark. I know this isn't consistent with my asset allocation -- this is something I will try to address over time.

Here is a preview of the investment snapshot. Ill give the breakdown of our monthly investments in a later update:



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Comments (8)


Congrats on taking a first step. Knowing is half the battle.

I use yodlee, the online account aggregator. There is a version that comes with Fidelity. I use the direct yodlee version because I have this irrational fear of Fido knowing about my entire NW picture, but eventually I will move to the Fido flavor.

Some people like the HSBC version (of yodlee) 4.x, but I don't care. I get updates for all my positions in NW in a couple of minutes.

Statistically you only need about 30 stocks to have a diversified portfolio. It looks like you are all in large caps. Nevertheless, because you have a statistically significant sample size, you should be tracking the market pretty closely day to day. There shouldn't be 5%+ tracking error from what I can see.

There are tools out there to make things easier for you. Simplifying with:

1) US EQ total market index
2) Global EQ total market ex US (can also be split EAFE and emerging market)
3) US bond Index
4) Inflation protected fixed income (i-bonds or TIPS)

may make tracking and record keeping easier. It's definitely worth it if you can keep expenses at or below 7bp for US and 20bp for int'l. Only 4 allocations to rebalance.

Note that I don't have a commodities allocation. This is because academic research and logic indicates that commotities only hedge a portion of the CPI basket overweighting oil and gold (these days). What you want is a CPI hedge and that can only be provided effectively and risk free by the products above (Ibonds & TIPS).

There is also a new ETF that gives you exposure to a basket of inflation protected securities issued by non-US governments if you want to diversify that further.

Btw, you must be making a killing on your IBM stock. While it's high, maybe it'd be a good idea to pare down, sell some of it and diversify a little.

I also don't get why you go to VG, the ultimate index/passive shop and put most of your dough on the actively managed fund with an expense ratio almost 5x that of VTI. Hmmm....

Glad to see your portfolio isn't 50% aapl and fxi. There are some real nitwits out there.

Here's a paper with a completely new approach to investing. It is really interesting. Have a read through when you get a chance:

http://prc.wharton.upenn.edu/prc/PRC/WP/wp2001-8.pdf

Best,
ETFnerd

Have you checked out Yodlee?

Its a lot better than money, its online, and has access to more things.

It still seems to lack sometimes, but unless you manually track everything yourself i think all programs will be lacking.

Since you metioned the dividend, you know that the index return doesn't take into account the dividend right? Coudn't tell from the s/h that you were stripping it out when comparing to the benchmark.

Can you supply a download link for the excel? Or Send it via email for personal use? I have a similar sheet I created for my accounts, but you have hit the nail on the head with the ability to track performance.

ETFnerd -- as usual thanks for the comments.

As for IBM - I know its had a huge run. Its on the radar screen, but I haven't yet decided to make the transaction

Index with dividends - Good point - I haven't looked into that too much yet, although what I am doing it tracking the VTI with reinvested dividends so by default it also includes reinvested dividends. Any suggestions on how to do this better I am all ears.

ten2amil - yes long term I hope to do that -- still have a lot o work to do to polish up the Excel file before I am ready to post it.

As just a side note, what I ended up doing was basically stripping out my investments worth less then

A slight modification to your 30 stocks to be statistically diversified statement. You would have to RANDOMLY select 30 stocks in equal proportions from the universe of stocks to be fully diversified, this research is also outdated as today most researchers claim that 100-150 stocks is required for full diversification of company specific risk. By selecting stocks yourself you inherently introduce bias into the system. But then that's what you want to know correct? Can my bias beat the market? Good luck, I like your reporting.

Another great practice (along with benchmarking your portfolio) is to create risk adjusted returns for your portfolio. Because you are using Excel, this a pretty easy thing to do. By leveraging risk-adjusted returns, you are evaluating the amount of return you were able to achieve, per unit of risk, and providing better insight into whether you actually outperformed the market, or just took a whole lot of non-compensatory risk. Then you can graphically represent your portfolio with your most appropriate benchmark (on the Capital Market Line, with total Standard Deviation and Growth Rate [academically speaking you supposed to use "average return" but I think growth rate i.e. geometric rate of return is a better indicator of that] along the x and y axis respectively, using the T-Bills as the y-intercept), and create a great visual representation of your portfolio performance and risk!

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