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Maintaining and monitoring a portfolio can be a daunting and time consuming task, depending on the depth of the analysis. Reviewing a portfolio requires discipline to go through the process outlined below. Setting up a calendar with periodic reminders is something I find useful. Some investors will find once a year is sufficient to review a portfolio, while others will want to check on the portfolio more frequently. I schedule reviews to take place every four to six weeks depending on the size of the portfolio.

Here are five check points I find essential when it comes to the portfolio review process.

1. Update All Transactions: All transactions including dividends need to be current. If done mid-month, one needs to have access to the broker account. While this will not include the money market interest, that is so small as to be insignificant.

2. Check Asset Allocations: The following table comes from a Sample Portfolio spreadsheet. This table lays out the asset allocation plan for the portfolio. Target percentages have the white background, and the values with the colored background are the actual percentages currently held in the account. For example, 11.7% is in emerging markets while the target percentage is 15%. The purplish background indicates the allocation is below target. Most of the asset classes are within the 20% threshold, the boundary limits used in this example.

Examination of this worksheet quickly tells the manager if the portfolio is in balance and what asset classes need attention. Investors who build their portfolios around an asset allocation plan need a visual way to tell if the different asset classes are within the target limits.


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3. Review Performance vs. Benchmarks: Comparing the Internal Rate of Return (IRR) of the portfolio with the IRR of several benchmarks is the third step. I use two benchmarks. Of those listed below (blue background) my preferences are the VTSMX and a customized benchmark, the ITA Index. At least another year of data is needed before the ITA Index becomes viable.

Readers can see the portfolio is closely tracking the VTSMX, Vanguard's Total Stock Market Index Fund. That slight lead of 0.1% is due to rounding.

This data was extracted from the TLH Spreadsheet. Investors interested in examining this spreadsheet in detail can contact me for more information.


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4. Examine Uncertainty or Risk Results: The above screen shot includes two uncertainty measurements, the Sortino and Retirement ratios, SR and RR respectively. For more information on these risk measurements, check into this site where the mathematics is expanded for interested investors.

Both the SR and RR risk measurements use a semi-variance calculation as it is preferable over the mean-variance method. These ratios provide a Return/Risk value and anything above zero is highly commendable.

The following analysis requires access to the Quantext Portfolio Planner (QPP) software. This analysis exposes a few weaknesses in the Sample Portfolio. While the projected return exceeds that projected for the S&P 500 by 1.6% points, the projected Standard Deviation is a high 18.5%. Even in this high market, we prefer to see the projected SD to come in below 15%. The Sample Portfolio tilts toward a high risk portfolio, something to be avoided in this market.

One more weakness in this asset allocation is the rather low 31% Diversification Metric (DM). The goal is to see a portfolio with a DM 40% or higher. Without any type of review, the manager of this portfolio would be oblivious to the rather high risk and low diversification.


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5. Run Future Projection Analysis: Extrapolating data is always a dangerous endeavor. The following table is such a projection. I call it the "Delta Factor" and readers can learn more about it at ITA Wealth Management Research. This table is to provide a "probability tilt" of which way the various ETFs are likely to lean over the next three to six months. In the following example, most ETFs show a "Hold" position and only GSG indicates a "Buy." I would only use that "Buy" signal as an indicator to do additional research rather than make a decision on one single indicator.


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This portfolio review process provides the investor or money manager with crucial information. Is the portfolio following the Strategic Asset Allocation plan? How is the portfolio performing with respect to an appropriate benchmark? Finally, how well can one expect the portfolio to perform and is the risk level within tolerable limits?

Source: Portfolio Review: 5 Essential Steps