The big picture, literally

September 25, 2012 - John Osbon (2 mins to read)

When we ask what your portfolio looks like, we mean it literally. We find that a visual representation of a few critical metrics can tell us a lot about your portfolio and how it can be expected to perform.  Let’s take a look at a hypothetical portfolio, in pictures.

We know that the risk and return of an investment portfolio is overwhelmingly determined by a few simple metrics of asset allocation. First, the distribution of assets across the four primary asset classes – stocks, bonds, alternative investments, and cash. As these four asset classes typically perform differently in any given investment environment, owning a mix of assets reduces overall portfolio volatility. For instance, inflation may be bad for bonds, but good (in small amounts) for stocks.

How much in each basket?

Last week we discussed how we use Windham software to set specific allocations to different asset classes based on client goals and needs. There’s a lot of science behind portfolio optimization, but it all starts with the high level allocation that is depicted in the first pie chart. Watching this chart over time also easily identifies when it’s time to rebalance.

Dollars, euros or yuan?

Markets are global. Is your portfolio? The US/non-US pie chart captures a portfolio’s level of international diversification, but also indicates exposure to currency risk. That dollar/non-dollar split should be set by design, not default, and is unique to each investor.

Get a visual check-up

Thanks to the spreadsheet tools created by Max Osbon for our clients, we can provide an excellent graphical analysis of your portfolio, and we’d be happy to do so, without obligation. It’s a great starting point for fine tuning the risk and return characteristics of your portfolio, or building a new portfolio that better matches your goals and needs.

One quick picture is worth a thousand words.  If you’d like us to take one for you, click here and we’ll respond.




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