In just the past month, we saw the market decline by more than 10% over a period of 20 days. When you see your portfolio drop, you start to second guess if you've set up your investments appropriately. Are you making smart choices to grow your wealth over the next 1, 5, 10, or 30 years?
Today, we'll cover a few steps for effectively managing your investments.
🧠 What you need to know
When managing your investments, these are some important checklist items:
1. Diversify appropriately
2. Evaluate performance
3. Optimize taxes
4. Cut fees
5. Assess cash needs
Let's break these down:
1. Diversify appropriately
This depends on:
- How much risk you're comfortable with
- What kinds of investments you prefer (stocks, bonds, etc.)
- How many different investments you want to hold
Consider how your money is spread across different sectors like tech, real estate, and healthcare and different assets like stocks, bonds, and commodities. You may also decide to take a different approach to diversification for each of your taxable, retirement, children’s accounts, health savings accounts, and others.
You can learn more about constructing a diversified vs. concentrated portfolio here.
2. Evaluate performance
Compare how your investments are doing against relevant market standards. This helps you see if you're doing better or worse than the overall market. It’s important to choose the right benchmark based on your asset allocation.
3. Optimize taxes
Optimizing your taxes can be a significant contributor to your long-term wealth. Ways to do this include:
- leveraging tax-advantaged accounts
- tax-loss harvesting
- using loss carry forwards
- avoiding short-term capital gains tax
- optimizing which accounts earn dividend income
4. Cut fees
Fortunately, investment fees have come down a lot over the past couple of decades. Gone are the days of paying a $10 commission just to execute a trade. However, you should still pay attention to:
- Fees for ETF and mutual funds
- Hidden 401(k) fees
- Advisor fees, if you work with one
5. Assess cash needs
Earning a return on extra cash, provided you don’t need it, is critical to building wealth. Invest extra money you don't need soon, but plan for future large expenses like college tuition, a home down payment, a new car, a big vacation, or all the fun things you want to do in retirement. Plan which accounts and investments you'll use for these goals to avoid unnecessary taxes or selling valuable investments.
When managing a portfolio, there is more to consider beyond these five areas, but these serve as a great starting point.
🤝 How can Mezzi help?
These steps can seem time consuming and complex. Mezzi does the heavy lifting for you. Use Mezzi to regularly:
Diversify appropriately: View the Concentration cards for each account to ensure you’ve achieved the desired diversification. Mezzi will alert you when certain stocks or funds become concentrated positions in your portfolio.
Evaluate performance: Track how you’re doing with Mezzi’s time-weighted performance that normalizes for transfers in and out of accounts. You can benchmark the total performance of all your accounts or compare your taxable accounts to your tax-advantaged accounts.
Optimize taxes: Mezzi’s tax insights guide you through tax-loss harvesting opportunities and alerts you to opportunities to avoid short-term capital gains tax.
Cut fees: Powered by AI, Mezzi suggests alternative ETFs with lower fees than ones currently in your portfolio.
Assess cash needs: Track changes in your cash and money market fund balance as a percentage of your portfolio using the Allocation card. Mezzi’s alerts will help you stay on top of opportunities to invest your cash. Connect your bank accounts, in addition to investment accounts, for a true picture of your liquidity.
