Portfolio Manager shows issues; Fund Advisor fixes them

Summary: A yearly portfolio review is supposed to bring peace of mind. It usually surfaces problems instead. Seeing what's wrong is not the same as knowing what to do about it and that gap is where most good intentions quietly die.

I have spent a good part of the last 25 years telling investors to look at their portfolios less often. The number that sits at the top of any portfolio screen, the one that tells you how much richer or poorer you became today, is there to hold your attention rather than to help you. And an investor who watches it move every day will sooner or later feel that he ought to do something about it. That is where a great deal of the damage in personal finance begins. The checks that genuinely improve how your money does are few, unexciting and annual: whether you are putting in enough and raising the amount each year, whether your mix of equity and fixed income has drifted away from what you first intended, and whether you are as diversified as you like to believe. Look at those once a year and let the rest wash past you.

What I have come to notice, though, is a gap in that advice. A yearly look, done properly, does not leave you in peace; it hands you a set of problems. You find that your equity share has crept up to 85 per cent when you had decided on 65 per cent, that six of your 15 funds are really the same fund wearing different names, and that a scheme you bought with some enthusiasm six years ago has been trailing its category ever since without your noticing. Seeing all this is useful, but seeing is not the same as setting it right, and a review that surfaces problems it cannot solve becomes a source of worry rather than the relief it was meant to be.

A mirror will show you that your face is unshaven, but it will not shave it for you. The free tool I have been describing for years, our Portfolio Manager on Value Research Online, is a very good mirror. It looks through your 15 funds to the shares underneath them, shows you where you are concentrated in a single sector or a handful of large companies, keeps track of the capital gains tax your holdings are building up, and lays the whole picture out in one place so that a long list of funds can no longer fool you into believing you are diversified. What it does not do, and was never designed to do, is tell you what to do next. That part is left to you, and for most people, that is exactly where the difficulty lies.

Think of what those decisions actually ask of you. To act on a drift in your allocation, you have to decide which funds to trim and which to add to, which means holding a view on whether each of your existing funds still earns its place. To repair a concentration you have only just discovered, you need to know which of the overlapping schemes is the better one to keep and which to let go. And to deal with that long-standing laggard, you have to judge whether it is a sound fund going through a rough patch or a fund that has genuinely lost its way, which are not the same thing and remarkably hard to tell apart. None of this is a failure of attention. These are questions of judgement about several thousand schemes, not something a person with a job and a family can be expected to carry in his head.

This is the work our Fund Advisor service exists to do, and it is the natural other half of the free tool. Where Portfolio Manager shows you your portfolio, Fund Advisor’s Portfolio Analysis goes through it holding by holding and tells you what is right and what is wrong with each one, by suitability, by how much it adds to your diversification, by risk and by cost. Sitting alongside it is our analysts’ standing verdict on almost every fund of any consequence in the market, set out plainly as Good, Steady or Exit, so that the vague feeling that something in your portfolio is amiss turns into a specific instruction: keep this one, let that one go. And when a fund you are selling needs replacing, our Analyst’s Choice, a shortlist hand-picked from the Good list, points you to a better home for the money rather than leaving you to guess. The yearly look stops being a list of anxieties and becomes a short list of to-dos.

There remains one more gap to close, the one between deciding and doing, and it undoes more good intentions than any other. Anyone who has resolved to rebalance and then let the forms and the effort wear the resolution down knows how easily a sensible plan comes to nothing. Fund Advisor lets you act on its advice on the very screen that gives it, in the direct plans of the funds, which carry no distributor’s commission and so cost you around a percentage point less each year than the regular plans most people end up holding without ever being told a cheaper version existed. Over two decades, that saving alone amounts to a good deal of money, but the more immediate benefit is simpler: the change you decided on in your review actually gets made, rather than lingering on a mental list until next year’s review finds it still waiting.

Because investing in India is so rarely a solitary affair, a single subscription covers up to six family members, so that the same clear view and the same advice reach across a spouse’s portfolio, a child’s first funds, and a parent’s retirement savings without you having to combine them manually. And for the questions that do not fit a Good or an Exit, the ones that begin “in my own situation, should I...”, there are our Q&A sessions in which my colleagues and I answer members directly. I should add, since it bears on how you ought to read everything above, that we take no commission from any fund we recommend and never have. Our fee comes from you and from nobody else, which is the only arrangement under which advice about which fund to buy is worth having at all.

None of this unsettles the discipline I began with. You should still look once a year rather than once a day, and you should still let the large, alarming daily figure pass you by. But the purpose of that annual look was never to give you one more thing to stare at. It was to let you put things right and then return to your life, reasonably sure that the handful of decisions that truly matter have been made well and made in time.

Also read: Untangle 50 funds without the tax bill