(PUB) Investing 2015

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17 Morningstar FundInvestor July 2015
You might get caught up comparing one holding’s
year-to-date return with that of another, for example,
or spend an inordinate amount of time hunting for
the reason why your cash weighting went to 7% from
4%. Things can get even more unwieldy if you have
multiple portfolios saved on the site—one for your
401(k), one for your spouse’s rollover IRA, and so forth.
Before you know it, a few hours have gone by, and
you’ve barely made any headway in your portfolio-
review process.
To help avoid that trap, start your portfolio review by
asking the basic question, "Am I on track?" If you have
multiple portfolios saved on the site, the "Combine"
feature (under the "Create" tab in Portfolio Manager)
can help you collapse them into a single portfolio
that you can use for ongoing monitoring. (If you do so,
you can also retain your subportfolios to review
separately.) Armed with information about your total
balance and savings/withdrawal rate, you can
then turn to a basic calculator such as Morningstar’s
Savings Calculator—or a more refined one such as
T. Rowe Price’s Retirement Income Calculator—to see
whether your current portfolio’s value gives you a
good shot at reaching your financial goals. If you’re
off track on this front, portfolio tweaks might not
move the needle; you may need to adjust your savings
rate (or your withdrawal rate, if you’re retired) to
improve the viability of your plan.
When it comes to your portfolio, it’s also valuable to
think big picture. Morningstar’s X-Ray tool provides
you with many details on your portfolio’s positioning,
but the most important determinant of its perform-
ance will be your total portfolio’s asset allocation,
expressed as a pie chart in the top left-hand corner
of the X-Ray view. Compare your current weightings
with those of your targets; if you lack targets, use
Morningstar’s Lifetime Allocation Indexes or a good
target-date series, such as the ones from Vanguard or
T. Rowe Price, to check up on your portfolio’s reason-
ableness. Also, take notes of any major unwanted
sector or style bets.
Mistake 4 | Not Focusing on Tax-Sheltered
Accounts for Changes
If it turns out that you need to tweak your portfolio—
and today, many investors are apt to find their
portfolios heavy on stocks relative to their target allo-
cations—be careful not to trigger any unwanted
tax consequences along the way. That’s particularly
important these days, as many investors have
substantial gains in their equity holdings; selling
highly appreciated positions from their taxable
accounts is apt to trigger a capital gains bill. That
means that if you need to reduce the importance
of a given asset class, sector, or investment style in
your portfolio, you’re better off doing so by trimming
positions in your tax-deferred or Roth IRA accounts.
There, you won’t face any tax consequences as you
reduce the value of your most winning holdings. K
Contact Christine Benz at