How to Check Your Asset Allocation If You Only Have 10 Minutes

Asset allocation is the practice of deciding how you divide your investments into different asset categories, such as cash, stocks, or bonds. (See SEC's investor publication on asset allocation for beginners). Or, if you will, imagine your investment portfolio as one giant Easter egg basket - your asset allocation would be how you select the different eggs to put into your basket.

 

Investment experts advocate the importance of rebalancing - the act of buying or selling stocks or bonds to revert to your desired allocation. Studies have shown that regular rebalancing is key to controlling portfolio risk. Stocks are high-risk, high-reward, while bonds are lower in risk and rewards. A good asset allocation is one that helps you construct a portfolio that will earn the return you need for your goal, but still keep the risks at a manageable level.

However, before you can rebalance your portfolio, you must understand what exactly IS in your basket. It may sound complicated, but the good news is that you can check your current asset allocation even if you only have 10 minutes to devote to the task. You can do it on a weeknight, during your lunch break, or in the morning.

 

Step 1: Log in to all your investment accounts (your 401Ks, IRAs, and any taxable accounts you might have). If you've forgotten your account information, request them online from your investment companies or check with Human Resources for company-sponsored retirement accounts such as 401Ks or Sep-IRAs. Jot down the tickers and the account balances of the mutual funds and the individual stocks you own. You will need this for Step 2. (5 minutes) 

Step 2: Go to Morningstar's Instant X-Ray tool (there may be other tools out there - this is the one that I've used before) and enter in the tickers of your stocks and funds (5 minutes). The Instant X-Ray tool is a free and fast way for you to check what is your asset allocation.

 

This Morningstar Instant X-Ray, true to its name, takes an X-Ray picture of your fund holdings. It will help you determine the mix of stocks and bonds that you're holding, as well as the types of stocks (international, small-cap, large-cap, etc.) and bonds (corporate, high-yield, government, etc.) that you have. This tool gives you the "complete picture", especially if you hold a lot of different stocks or mutual funds.

For example, you might want to have 20% small cap stock, and 50% large cap stock, and 30% bonds as your desired allocation. To that end you purchased a small-cap fund. But what if you have a general stock fund that also includes small cap stocks? This tool will show you if you have more small cap stocks than you mean to have.