Compensated Awareness Post View
Disclaimer
Interpreting Your Brokers Reports
Each month, most brokers or banks send a printout of information about your investments, often accompanied by a cover letter and some other documentation. While these statements provide ongoing updates about your investments and how they have performed, the quality and presentation of the information varies. The documents and printouts are frequently unclear and investors often have trouble deciphering what is important and how to interpret the material, even after discussions with a broker. In this article, well give you some guidelines for interpreting the important information contained in these brokerage reports. (Make sure your broker is working for you with Is Your Broker Acting In Your Best Interest? and Evaluating Your Broker.)
Asset Allocation and Risk
Typically, your portfolio structure is presented as a breakdown of the various asset classes in which it is invested. Your asset allocation includes stocks, bonds, cash equivalents, alternative investments, real estate and natural resources. You may also see a breakdown within a specific asset class, such as segregating equities by market capitalization or bonds according to the type of issuer.
One problem is that the report will often not specify the level of risk you are taking in your portfolio or, even worse, will categorize it incorrectly. A moderate level of risk might entail a roughly even allocation between stocks and bonds, or at most, a 60/40 split. However, brokerage firms often categorize portfolios containing 80% equities as medium risk. Other reports simply do not address the level of risk, or insert the term medium risk somewhere discreetly at the top, bottom or side of the page, where the unwary investor barely notices it. You should be kept clearly informed of the level of risk of your overall portfolio, and if your asset allocation seems too aggressive or conservative for you, then talk to your financial advisor about the issue. (To read more on these topics, see Determining Risk And The Risk Pyramid, Risk And Diversification and How Risky Is Your Portfolio?)
Performance of Your Portfolio
Next, look at your portfolios performance for the most recent period reported, and how it compares with past performance. If returns are not satisfactory to you, talk to the advisor and determine whether any changes may be needed. A simple listing of cost, current value and other figures, with no meaningful analysis or discussion, is not very helpful.
In addition to seeing how your portfolio has performed, you need to know how well, or poorly, it has performed, compared with other investments. Comparing investment performance to benchmarks, such as market indexes or industry statistics, will provide a yardstick for evaluating your own portfolio. (Keep reading about this in Benchmark Your Returns With Indexes.)
For example, the Standard
