Step-by-step process to doing your own investment portfolio review and how to get your portfolio reviewed by an expert
We’re back with another investment portfolio review from you out there in the community. I get requests every week to review stock portfolios and while I don’t do individual consulting anymore I wanted to help you out so figured this would be a great way to do it.
I’ll be reviewing a portfolio of someone out there in the community and even if it’s not your portfolio, it’s a great view into the process as I review these portfolios and how you might apply it to your own stocks. Watch the video for a step-by-step portfolio analysis or read the transcript below.
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Meet Arthur and Edna Castle…and their Financial Goals
By the way, if you do send in your portfolio for a review…understand that it could be a few weeks before I can create a video AND you give permission to share it and give you whatever anonymous name I want…and today’s couple is straight from one of my favorite Twilight Zone episodes, Arthur and Edna Castle …all you out there in the Nation know I’m a HUGE Twilight Zone addict so if you do send in your portfolio…you’re probably going to be someone from the show.
Arthur and Edna are 60 and 56, just left New York to move to sunny Florida to escape the snow and income taxes. They sold their home and investment properties and have a million-dollar portfolio so here’s your chance to see how to invest a million dollars and what that looks like.
Arthur had a remodeling and real estate investment business but hasn’t started that in Florida. Edna has joined a family practice clinic as a doctor and will be making $300,000 a year but would like to retire within five to seven years max. She’ll likely switch to part-time telemedicine making around six-thousand a month for a while though.
Moral of the story here kids, be a doctor…or a nurse. My wife just got back, had to fly up to Miami to sit for the nursing exam ahead of our move to Tampa and we looked into how much nurses make….holy shmolly! I got me a sugar-mama there!
The Castle’s $1,000,000 Investment Portfolio
But I digress, back to the portfolio. The Castles are estimating their expenses in retirement between $100,000 to $120,000 but could probably make due on ninety-grand if they have to. They bought a house in Florida and have about $150,000 equity in it. The only other debt is a personal loan for $88,000. No credit card balances, they have two cars paid off and are investing 20% of their current income. They’re willing to take some risks to grow their current portfolio of one million dollars to two million and are wondering how to do that and if it’s even possible.
I’ll be using the portfolio tracker spreadsheet I developed to review the portfolio . It’s a great tool not just for tracking your investments but some of the goal planning we’ll look at. After we look at the portfolio, I’ll also answer Arthur and Edna’s questions about investing so stick around because I know a lot of you have these same questions.
Track your entire portfolio, see the gaps in your investments and compare two stocks instantly with my Portfolio Tracker spreadsheet.
Here I’ve put in the ticker symbol, number of shares and price paid for each stock or ETF and then the spreadsheet runs the program to fill in the rest from the online database. Besides the stocks and funds, we can also scroll down and put in other assets. So besides the $440,000 the Castles have in stocks, they also have $25,000 in cryptocurrencies, $20,000 in a real estate investment property, about $11,000 in cash and just over half a million in a Vanguard money market account waiting to invest that back into stocks.
What I want to do is scroll over and it’s set up to tell you how much of your portfolio you have in each of these. And normally this would be a warning to have more than 10% in one investment but most of these are diversified funds like the VTI and those dividend funds so those are diversified in themselves.
A few of the individual stocks here also show a high concentration, like 9.2% of the portfolio in shares of AGNC Investment but it’s actually only a small part of the overall million-dollar portfolio since they have so much in the money market account. Again, for most investors, where this top section here of stocks and funds is going to be most of your portfolio, I would limit any individual stock to no more than five- or ten-percent of the total at the most just to keep your wealth from being dependent on any one company.
Investment Portfolio Review Step-by-Step
One thing we do immediately notice is that most of the individual stocks here are in real estate investment trusts, those REITs. Now I love REITs and they produce a solid dividend yield but we could probably add some stocks in other sectors. Those REITs will produce decent income yield but don’t typically allow for much growth so if your goal is to grow the portfolio, you’ll need something else as well.
I also notice there’s no bonds in the portfolio and I know bonds have sucked so far this year but the selloff has run its course and one thing we’ll talk about later is safety of capital versus growth. With just six years left to retirement, the Castles need to balance that desire to grow the portfolio with the need to make sure that money is there when they need it and bonds are still one of the best ways to do that.
Having this $566,000 in the money market fund is going to be an opportunity over the next year, being able to slowly invest that back into the market, but we need a plan for how they’re going to do that.
This is something we’ve talked about on the channel before, why having a plan for how and when you’re going to invest any cash in your portfolio is so important. I know a lot of you out there are watching the market every day, freaking out over whether you should buy the dip or when stocks will stop falling so you can invest that cash and get the highest return possible.
In reality though, the only thing you’re getting is grey hair and probably a heart attack from daily freaking out over the market.
Instead, I want you to make a plan for how and when you’re going to invest that money. For example, the $566,000 in a money market fund here, we might put 15% of that in bonds and 15% in some stocks across different sectors now and we’ll talk more about that in a minute but then we’re going to set points where we plan on investing the rest. Say if the S&P 500 falls to 3,500 we invest another 25% of the cash, then if it reaches 3,000 we invest another 25% and finally if it falls to 2,500 we invest the rest of the cash.
What this is going to do is, not only give you the opportunity to use that cash to buy in at lower prices if the market keeps falling…because without a plan, most investors would get impatient and go all-in and then be fully invested as the market falls. But more importantly here, this is plan is going to replace all the heart meds you’re taking because of that market stress . Seriously, having a plan like this means you don’t have to stress out every day wondering when to invest, when to buy the dip or if you’re going to miss it. You’ve got a plan, you’re going to stick with it and you’re not going to worry about timing the market.
I really like this portfolio overview tab for a big picture look and here it says 53% in p2p but that’s the money market fund, the box is coded to p2p so something I need to update. But again here we see no bonds, less than 2% in real estate and bitcoin though quite a bit of the stock portion is in real estate stocks and then 41% in stocks…basically it’s a cash and stock portfolio so definitely would look to diversifying that out with a few more assets.
The sector breakdown for the stocks drives this home again, they have everything in real estate stocks and then a few financial services stocks. Now they do have quite a bit of diversification across sectors in those ETFs in the portfolio but I think there is an opportunity here to use some of that money market cash to buy stocks in some of the other sectors.
The spreadsheet will also compare two stocks against each other, so just put in the ticker symbols for each and it will go into the database to pull not just all these fundamental ratios of the two stocks but also for the sectors to give you a comparison.
Goals Planning and Portfolio Analysis
But let’s go to the investing goals tab because this is going to bring a lot of this home for the Castles. I’ve averaged their ages here to 58 years old and six years to retirement. They’re investing 20% of their income or about $5000 a month.
And what the spreadsheet is doing here, it’s taking what you put in on the portfolio tab, all your investments and adding them up for this current portfolio. Then it’s taking just some historical market return information to estimate, with the returns and your assets, what your portfolio might be in that many years to retirement. So here it’s saying, that million dollar portfolio invested about half in stocks and half in the money market fund, can grow to about $1.8 million in six years on historical returns and with that $5,000 a month invested.
We’re going to come back to what that means but here I’ve put in $8,500 a month for retirement expenses, which is the low end of what they expect but we can play around with the numbers here. I’ve put in 15% for capital gains taxes and am just going to use $36,000 for combined social security which would be about $1,500 each per month. Obviously these are numbers you want to change according to your situation but here it says at that tax rate and social security, the Castles will need about $84,000 a year from their investments to pay the $8,500 a month in expenses.
And last step here, if they take out 4% a year from their portfolio, then they’ll need about a $2 million portfolio to produce that $84,000 annual cash flow.
And we’re actually pretty close to that with the current investments. Even with half in the money market fund and an overall annual return around 5.5% they get to $1.8 million in six years if they can keep investing the $5,000 a month. So while we’ll talk about what types of investments to buy with that cash and how to do it, I don’t think they need to get very aggressive especially since they’ll be needing that money in six years.
So here I might add some bonds. Yes they haven’t provided much safety this year but the rise in rates has slowed so the selloff has run its course and the asset is again offering attractive yields and safety. I would go with short-term bonds like the Vanguard Short-Term Bond Fund, ticker BSV, which is paying a 2.8% dividend yield and won’t be as negatively affected as long-term bonds if interest rates keep going up. With these, you’re going to get that safety plus a better return than you do on the money market.
I think you can also start to put some of the money market fund into stocks of relatively safer sectors like consumer staples, utilities and healthcare. One to even out your portfolio a little and for a little extra return beyond the half a percent money market. You can go the easy route with some of the sector funds like the SPDR Utilities fund, the XLU, or the SPDR Consumer Staples, the XLP, or just pick a few of the individual stocks you like.
Again though, you don’t need to push all that money market cash into stocks immediately, you’re still well on your way to that goal so I would make a plan for investing the money. You might say put 15% of the cash in bonds and 15% in some of those sector stocks now, then plan on putting the rest of the cash into the market only if the S&P index falls to certain points. Say if the S&P falls to 3500 which would be about another 10% lower or 27% down from last year’s peak then you invest another 25% of the money market cash. If stocks fall lower to maybe 3000 and then to 2500 on the S&P which would be 37% and 48% down from the peak then you buy in at each of those points to take advantage of the lower prices but with just six years left to retirement, you don’t want to be pushing your cash all-in into stocks in case the market just keeps falling.
Now I will say that the short time horizon, so that idea of lower risk tolerance and safer investments, is balanced a little by the fact that they already have a large portfolio and could probably cut expenses a little if it came down to it. They can also take a little more risk because of Edna’s plans to work part-time and is in a profession that pays so well. Overall they’ve got a great start on their portfolio and are nearly there to reach those financial goals.
Use this step-by-step investment portfolio review to analyze your own stock portfolio and find the gaps in your investments. By reviewing your portfolio at least once a year, you can be confident of reaching your financial goals and not being caught in the next stock market crash!
Don’t Miss the Rest of the Portfolio Review Series