What Is Portfolio Analysis?

Your investment portfolio is the collection of all of the assets you’ve invested in. This can include things like stocks, bonds, real estate, cryptocurrencies, and more. Portfolio analysis involves looking at your portfolio to determine whether it meets your investment goals.

It isn’t typically too difficult to determine the overall value of the various assets you hold, but you also need to take your portfolio risk into account. Assets have different risk levels, and these will play a part in your analysis.

Various events can affect your assets in different ways. Market professionals observe how assets perform in different situations. You can do this to help develop a suitable investment strategy.

How It Works

When you analyze your investment portfolio, you’ll be able to get an idea of what your assets will do under certain circumstances. One of the main purposes of this is to make sure they won’t all move in the same direction during a specific event. If they will, your portfolio risk is considered to be high.

Having a diverse portfolio will lower your risk. It will ensure that when some assets go down in value, others generally won’t. You want your assets to lack correlation so that they behave differently.

The Covid-19 pandemic, for example, had a huge impact on various sectors. Almost everything related to travel and tourism lost a lot of value, so if your entire portfolio was focused on this area, you would have experienced significant losses.

An investment mandate consists of instructions that specify how a pool of assets is invested. This is done by a fund manager to achieve goals, reach benchmarks, and manage risk.

It’s important to note that investment portfolio analysis can reduce risk, but it’s impossible to eliminate it completely. The financial crisis of 2008-2009 harmed the value of most stocks, so even many investors with diverse portfolios suffered losses. Despite that, it’s still worth working to reduce your risk where possible.

How to Carry Out Portfolio Analysis

Investment portfolio analysis isn’t easy. Fortunately, various portfolio analysis tools exist which can help you analyze your investment portfolio more effectively. Some people choose to work with professional advisors instead, as they have knowledge and experience that can be very beneficial.

1. Use a Stock Portfolio Analyzer

You can put your investments into an online tool to get various insights into your portfolio. Depending on the tool you use, you might be able to upload a spreadsheet, or you’ll need to enter your assets manually.

These tools allow you to research assets and track their performance. You can also view them by categories (stocks, bonds, etc.) or by sectors. You should aim to have assets in different categories to reduce correlation and, therefore, risk.

2. Evaluate the Overall Performance of Your Portfolio

Consider how well your portfolio performs overall. Compare it to your goals and other benchmarks to see how it stands up.

Depending on the assets you have, you might want to compare it to the S&P 500 or the Nasdaq, for example. You should also look at other elements such as the dividend yield, P/E (price-to-earnings) ratio, and expected growth rate.

3. Look at Your Assets Individually

Evaluate the allocation of your stocks, bonds, and other assets individually. With stocks, you can compare the P/E ratio to the S&P 500, for example. If you only have US stocks, you might want to look at some global mutual funds to diversify your portfolio.

Bonds provide stability and generate income. Making a plan to reinvest in bond interest payments can help you earn more. If you have bonds that are trading at a premium, you may want to consider selling them and reinvesting at a lower interest rate.

You might have other assets such as ETFs and mutual funds. If so, you should also assess these to see how they’re performing.

4. Evaluate Manager Fees

There will always be certain fees to pay, but you should make sure you’re not overpaying. Consider how well a fund is performing against the fees to determine its worth.

5. Think About Your Goals

Once you have a broad view of your portfolio, you can analyze it alongside your investment goals. Your goals are likely to vary depending on what you’re trying to achieve as well as your current point in life.

Someone who’s in their 20s and has just started investing is likely to have different goals than someone close to retirement, for example. You also want to think about the amount of risk you’re willing to take on and see if your portfolio matches it.

The Best Portfolio Analysis Tools

There are plenty of portfolio tools available. Each has its own uses, advantages, and disadvantages. Some of the ones you should look into include:

Empower
Morningstar
Stock Rover
Kubera
Blooom
Portfolio Visualiser

Empower and Stock Rover are good starting points as they’re free and fairly easy to use. As you grow your portfolio, you might want to move towards more advanced tools. It’s worth noting that these can be quite complicated, so there’s a learning curve to using them effectively.

Your Investment Portfolio

Following an investment mandate can be a good idea, but ultimately, your investment assets are down to you. Think about the types of assets you’d like in your portfolio and the amount of risk you want to take. Performing proper portfolio analysis will help you make better investment choices and achieve your goals.

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