You may be wondering how to get control of your investments. It’s not uncommon to feel that your investments are out of control.
Feeling out of control with your investing stems from two factors; risk that is inherent with investing itself, and order around your investments.
The first reason investors feel out of control with their investments is because investing is risky.
This is because so many factors that are completely outside of our control determine whether our investments will increase or decrease in value. That’s risky.
The second reason investors feel out of control with their investments is because most investors don’t have order around their investments. In other words, their investments are not organized in a clear fashion that allows them to easily see a big picture view of their assets so they can evaluate and manage them with confidence.
By having order around your investments however, you can greatly increase your awareness of how much risk exposure you have.
And once you’re aware of how much risk exposure you have, you can choose to change it.
Until then, investing can feel very stressful and out of control, because, well, it is.
So, in this post I will step you through how to bring order around your investments so you feel more in control of them.
Note that for the purposes of this task, we’re only going to address paper assets, such as stocks, bonds and funds. I suggest that other assets, real estate properties, including your home, and other assets are tracked in your net worth statement.
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How to Get Control of Your Investments
Getting control of your investments really involves only five steps.
1. Create an investment list
2. Categorize each investment into the following groups:
3. Clarify the reason for owning the investment
4. Name where each investment is held
5. List the type of account that holds the investment
Let’s look at each of these steps in more detail.
Create an Investment List
First, you’ll create some sort of organized list of what your investments are.
There are three major ways to create an organized list of your investments. There’s nothing wrong with any of these methods. The main thing is to choose one that you will actually do.
The Old Fashioned Investment List
The old fashioned way of tracking your investments is done with pencil and paper. I remember going to the office store in Bermuda right after I moved there in 1987 to purchase a green column pad like we used when I worked as an accountant.
Pencil and paper tracking of investments can be done in a journal or on grid paper. It can feel inspiring to manually track investment growth, sort of like journaling.
The downside is that it’s easy to make mistakes, and it definitely takes longer to update your investments each time you do it with the pencil and paper method.
The Slightly Updated Investment List
Digital spreadsheets are now a bit dated for tracking investments, but this is still my favorite way for the reasons you’ll see.
The benefits of spreadsheet tracking are
Automatic calculation of formulas
Updating is faster than with paper
Multiple columns are useful for tracking progress and saving data
Customization of your data
The main reason I like spreadsheets is because I like to customize my data. Once I get started making a spreadsheet, I think of interesting and valuable information and calculations I can easily add to my spreadsheet. You simply do not have this advantage with software someone else has created which cannot be customized.
I find that when I get involved with the creation of something, including a spreadsheet, it inevitably triggers brain storming.
Then brainstorming leads to new ideas for improving investment returns and optimizing investment capital.
This leads to the outlining and scheduling the steps I need to take to implement my best ideas.
I think the same might happen with you.
Plus, with an online tool that automatically updates my investments vs spreadsheet tracking, it’s so easy to know the task is already being done. Thus, I don’t spend the time really looking at my investments like I should.
When I prepare a spreadsheet, I can also access information quickly and easily from our brokerage accounts. This information can be downloaded and copied into one spreadsheet making the task very easy.
The disadvantages of using spreadsheets to get your investments under control are listed below
It takes more time than using an automated tool
Mistakes are sometimes made
Most people like to track their investments with an online tool, however, so let’s consider that next.
Best Online Tools to Track Your Investments
Three of the most popular tools to track investments online are below.
1. Personal Capital
2. Morningstar with a free or paid version
3. Stock Rover, which is suited more toward stock portfolios.
The advantages of getting investments under control using a digital tracker are below.
There are many products from which to choose
Consolidation of data from various brokerage accounts
The ability to download data and customize
The disadvantages of using an online investment tracker are below
Simply getting online leads to distractions
New platforms have to be mastered
Increased cyber security risks from linking accounts
There you have three possible methods for creating your investment list.
The main thing is to choose the method that you will actually do. Once you’ve selected a method simply add all your investments so that you have an organized list. Step one is complete.
So now you have all of your assets listed together. It should be easy to total them up but what we really want to do is see how much we have in different types of investments so we can more realistically estimate future returns as well as risk exposure.
Therefore, you’ll categorize each investment into the following groups.
Category of Investment
Identify each investment for the major category or type of investment that it is. The major investment categories are:
Real estate (funds)
Subcategories of Investments
Next, identify each investment into subcategories such as those below. This is super important because the various subcategories of main asset classes can behave differently from each other even though they seem the same.
To equate this to something that you probably deal with every day, pants and shirts are both clothes, but they need to be categorized because it wouldn’t make sense to end up with all shirts.
Most investors end up having too much capital in stocks because stocks are so heavily promoted commercially. Sometimes this doesn’t become obvious until it’s seen in its totality. That’s why the list you’re creating is important from both a peace of mind perspective as well as potentially increasing investment returns within your acceptable risk.
Here’s another example. TIPS, high yield corporate, and intermediate term treasury bonds are all bonds, but they can behave quite differently based on economic activity. Similarly short term bonds, also referred to as notes, yet usually grouped into the large category of bonds, experience minimal volatility while intermediate or long term bonds are subject to extreme interest rate volatility.
This same disparity can be said for various types of stocks. Emerging market, international, small cap, large cap, dividend stocks can all be considered stock subcategories, yet each has very different characteristics.
Similarly, real estate in a residential REIT has very different characteristics from real estate in an office REIT.
For these reasons, you’ll want to assign subcategories to each investment you own.
The subcategories of investments are listed below. Assign one to each of your investments.
Stocks or Equity Subcategories
International Stocks Large Company
International Stocks Small Company
Emerging Market Stocks
US Stocks Large Company
U.S. Stocks Small To Medium Company
You may also wish to assign sub subcategories, depending on how granular you want to get and also how many different types of investments you have.
Examples of the third level categories for stocks might be sector specific, such as pharmaceutical, utility or technology companies.
This is very important because utility stocks can act more like bonds and are very different from technology stocks during different economic situations.
Another third category you may wish to assign is income versus growth. This is because dividend, or income stocks hold their price better during bear markets than growth stocks and vice versa.
Bonds or Notes
Intermediate to Long Term Treasury Bonds
Short Term Debt or Notes
High Yield Bonds (Corporate or Government)
Probably even more so than stocks, the subcategories of bonds are very important because they respond so differently to different economic environments.
Storage or Industrial
Real estate subcategories Are very easy to see so you may as well add the to your investment list.
Number of Investment Categories
It’s extremely unlikely you will have all these different subcategories; very few investors do, and it may not even make sense to own all the subcategories. I present each of them, however, so you can label what you own.
Most investors own large cap (company) stocks, treasury bonds, and maybe some international stocks. Therefore, don’t worry that there’s something wrong odd about you if you only have 2 or 3 categories.
Two or three categories would not be enough for me personally to feel like my portfolio was diversified enough, however. For this reason, I invest in an asset allocation with a large variety of assets so that I’m covered for various economic cycles.
Many of My Financial Coaching Clients Aren’t Sure Which Subcategories Their Investments Fall Into.
So, how do you know what subcategories you have?
The names for funds can be very confusing. And both individual stocks and funds can be in two categories for sure. For example, AT&T is a large company stock that is also a high dividend stock.
And you could own a fund with international, dividend paying stocks of large companies.
As far as funds go, I like to look at the largest holdings in any fund to get an idea of the companies that it holds. It’s one thing to hear a fund owns large company technology stocks. It brings another level of understanding for me to see that, through the fund, I own IBM and Apple.
Also, Morningstar breaks funds into major categories such as large cap and small cap stocks. This is free published information.
While funds can own a variety of subcategories, they usually have an overarching category. You can also find a fund’s subcategory focus in a quick Google search or at the sponsoring company’s website.
After you’ve assigned a category and a subcategory to each investment, you’re about 80% of the way through getting control of your investments.
You’ll probably notice that the more you dig, the more confident you feel about your investments now that you have the process to get your investments under control.
The Reason for Owning the Investment
The reason for owning an investment often gets overlooked as the primary reason for buying any investment. The reason you own an investment should stem from your overall financial plan which is based on how much money you’ll need to live your desired lifestyle.
Instead, investments are often made because of hype around them, best guesses, following a template that supposedly works for everyone regardless of economic conditions or net worth, or simply not knowing what else to do with investment capital.
If you have fallen prey to this haphazard investment selection methodology please don’t feel badly; that is how most people invest.
The Two Major Investment Objectives
The next step is to add the reason, AKA objective, for owning an investment. The reasons will fall into the following two categories:
Note that many investments will deliver both objectives over time, but it’s important to assign a primary reason between these two major investment goals.
The reason this is so important is because it will give you feedback on whether or not you’re using your capital towards the fulfillment of your financial goals.
Having these two objectives straight also helps you have mental order around your investments. And mental order helps you gain control of your investments.
Investment Objective Examples
Let me explain this with an example.
Let’s say that you made an investment because you want income from the investment due to your recent retirement. Let’s further say that the market price of that particular investment declines by 40% over the eighteen months after you buy it.
Just the thought of this probably feels extremely painful but declines of more than 50% in the S&P 500 stocks have certainly occurred.
We need to go one step further and say that there is every reason to believe the price of this investment will increase back up to what you paid for it. In other words, there are no fundamental flaws in the investment suggesting that it may not return back to the price at which you bought it.
Therefore, if the investment continues paying the income that you bought the investment for in the first place, the investment has served your needs despite the decline in price that is presumed temporary.
On the other hand, if you bought an investment to increase wealth, and the market price of that investment decreases by 40% (or any percent for that matter) that investment did not meet your primary objective or reason for buying it.
The two objectives can be somewhat blurred.
For example, dividend stocks can and do often pay income while also increasing in price.
At different times in your life, you need to use your investment capital for different things. When you’re making plenty of money to cover your desired lifestyle, your main objective will be to increase wealth.
On the other hand, in retirement, your main objective will probably be income. Certain investments are much more likely to deliver your main objective than others, and this is what investing is all about.
This core objective often gets lost in the hype around of picking the next stock to quickly double.
You can see how clarifying the main reason to purchase any investment based on an overall financial plan to provide you with enough money to live your desired lifestyle brings a sense of purpose and certainty to your investments.
Having an orderly list of investments, whether paper, digital or online, with clear objectives will solidify your focus.
You’ve done the hard part. The next two steps are very easy but equally important to give you a sense of control over your investments.
4. Name where each investment is held
Most investors have assets in different places, particularly older investors.
So, next you’ll simply want to indicate where the investment is held. This will typically be at a bank or investment firm.
5. List the type of account that holds the investment
The last thing you’re going to do is list the type of account that holds the investment. The type of account will probably be one of the following.
Get Your Investments Under Control Summary
Now you’ve taken five big steps to get your investments under control. It feels good to see where, why, and how your money is invested in one organized place.
Most online tracking tools should allow you to have all this data in one place.
Keeping Investments Under Control
There’s one more thing that you will want to do and that is to update your investment list periodically. I suggest updating it at least twice a year or anytime there is a major change in the market price of your investments.
Regardless of which method above you use, you’ll want to track the increase or decrease of each investment every time you update your investment list. This will show you how your investments are performing.