Morningstar Money Challenge: Day 16

Today's Task: Do a "quick and dirty" portfolio checkup  

Ruth Saldanha 23 November, 2020 | 4:38AM
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This article is a part of a month-long Morningstar Money Challenge. You can find the details here.

Today’s task is for investors who have started on their investment journey. If you already have investments – this could be in any asset class, then today’s the day for you to do what Morningstar’s director of personal finance Christine Benz calls, “A quick and dirty portfolio check.”

If you don’t have a portfolio yet, don’t worry. We’ll talk about how to start your investment journey.

A good starting point is to take a snapshot of where your portfolio is right now, with an eye toward flagging any notable trouble spots. There may be a lot of information, and may not be valuable without some context.

Benz offers some questions to help you make sense of what you’re looking at:

  1. Is your stock/bond/cash mix in line with your targets? Take note if your allocation to any one asset class is more than five or 10 percentage points higher or lower than your targets. If it is, it's time to rebalance
  2. Are you making big, inadvertent sector bets? Compare your weightings to the index. Again, look for big bets of five or 10 percentage points or more.
  3. How about investment-style bets?
  4. Is a big share of your portfolio in a single stock? Positions amounting to five or 10 percentage points higher or lower than your targets can ramp up your portfolio's risk level.
  5. Do you have an adequate emergency fund? Make sure you have a bare minimum of three months' worth of living expenses in a cash or cash-like vehicle.

Additional Reading
Investing in your 50s
Investing in your 60s
Investing in your 70s
Investing in your 80s and beyond

Now if you haven’t yet started on your investment journey, there’s no need to worry. The one question we often get from new investors is whether they should invest in a stock, or in a fund. While it doesn’t have to be an either/or decision forever, beginning investors are often better starting with funds. If you hold only a few stocks, and one or two of them failed, it could have a large impact on your returns. There is a way to eliminate this risk – it is by owning many different companies. This is called diversification. The easiest way to diversity and get access to hundreds of companies is by buying a fund. For many beginning investors, that shortcut is a huge advantage compared with buying and researching individual stocks.

We have some ideas on how you could invest, depending on your age. You can look at these for more information.

Additional Reading
Investing in your 20s
Investing in your 30s
Investing in your 40s

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About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Follow her on Twitter @KarishmaRuth.


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