What Are The Gaps In Your Portfolio?

Investing is an important part of a solid financial plan. Even though it is an essential practice to help you reach desired goals, many people shy away from it. I think the reason is because investing is intimidating. The practice is full of jargon-y buzz-words that scare people off, and I can’t blame them.

But I want to make investing accessible to all of my clients. My secret is creating an investment approach centered around your financial goals. Yes, it can be as simple as that.

After you start investing, it is important to keep an eye on your portfolio to ensure that you are getting the best return on your investments. The longer your portfolio is active, the easier it can be to stick with the status quo, but I use a specific tool to help keep your portfolio fresh and profitable: portfolio gap analysis.

Portfolio gap analysis is a sophisticated system designed to help you find areas for improvement in your investments. But before we jump into this system, I want to give you a foundational understanding of asset allocation and how it plays into your portfolio arrangement.

Understanding Asset Allocation

Asset allocation is the process of dividing your investment portfolio among different categories. The process is meant to spread your assets out over different forms of asset categories to give you the flexibility to invest in your own way. Typically, there are three different asset categories you can use:

1. Stocks

2. Bonds

3. Cash

Asset allocation is highly personal and changes with each individual investor. There is not a single formula used to determine the number/percentage of assets you should have in each category. Rather, when you are looking at dividing your assets you should keep these things in mind:

• Your time-frame

  • This point urges you to think about your current objectives. For example, someone saving for a downpayment on a house may keep their assets in a more conservative mix ensuring they will have the money they need in the short-term. Whereas someone saving for retirement may be able to take a more aggressive approach as they have time to wait out the short-term market fluctuations.

• Risk Tolerance

  • Your risk tolerance matters, especially in the process of asset allocation. If you are uncomfortable with the stock market, don’t put all of your assets in stocks. There are so many options for your portfolio and you can change them as you move through different phases of your life.

• Financial Goals

  • Your goals should help determine the content of your investment portfolio. When you know what you want to save for, you can better create an investment strategy to fit your needs.

Asset allocation is important for investors because it encourages diversification in your portfolio, giving you the greatest chance for success and wealth growth. It is important to divide your assets into different funnels to help you get the best return on your investment.

When you extend your assets to multiple places, you are able to get the benefits of each: the high return of the stock market, the stability of a bond or CD, and the convenience and safety of cash.

But how do these elements work together? Let’s find out.

Uncovering Your Portfolio Gap

Now that you have an understanding of asset allocation, I can show you how I build on that process to discover the gaps in your portfolio. I use portfolio gap analysis to make sure you’re not over-allocated in one asset type.

This specific tool is a report that shows potential gaps between two investment portfolios and uses the following factors to help make that analysis:

• Asset allocation

• Diversification

• Equity

• Fixed-income characteristics

• Expenses

This gap analysis tool is important because it goes beyond asset allocation to get a more comprehensive look at your assets and current investment strategy. It then identifies areas where your portfolio may be falling short. The report is designed with the client in mind, as it is easy to read and helps me effectively compare and show you how your current investments stack up against a recommended portfolio.

When I am able to compare so many facets of your financial situation, I can provide the most accurate advice and tools for moving forward.

Investing is one of those things that constantly changes and evolves with time. As your needs and goals change, so will your investment strategy and execution. When you work with me, I will be there for you each step of the way, using the best tools that can highlight the most effective way for you to reach your goals.

Are you ready to improve your portfolio? Give me a call!