What You Need to Know About Online Portfolio Management

These days, we do most things online: shopping, blogging and even flirting.

But did you know you can also manage your portfolio online?

Online portfolio management tools provide you with a safe, easy, and comprehensive way to review and manage your investments. Some services also provide unbiased advise to help you make better investment decisions.

Here are some things you should look for if you venture online in search of ways to manage your portfolio.

Is Your Online Portfolio Manager Giving You Transparent, Unbiased Advice?

There’s a massive amount of investment advice online, but be careful.

Financial firms – especially large ones with prominent websites – are beset by the conflicts of interest that arise from their multiple business lines.

You may not want to heed fund selection advice, for example, from a firm that is mostly interested in selling you their funds.

They may be providing the advice that’s best for them, not for you.

However, these large firms can be sources of other useful information, such as white papers on asset allocation or retirement planning.

Just be judicious in selecting what you pay attention to.

So how do you know who you can trust? Look for firms that have a “fiduciary duty” to their clients. That means they’re legally bound to give you unbiased advice.

By law, a fiduciary must give you the advice that’s in your best interest – not theirs.

Also, make sure the advice is transparent.

Firms should always disclose fee schedules and any other costs you might incur when investing in their products. Make sure key disclosure information is readily available.

Also, when performance results are presented, they should be clearly annotated with disclaimers, limitations, and cautioning not to use past performance as a basis for future results.

Misleading performance information is not only bad for you, but it violates the SEC regulations to which investment advisors and brokers are accountable.

Additionally, be sure any recommendations are not in a black box. You want to make the methodologies and strategies used are transparent with explanations available as to why they are suitable for you.

Manage Your Portfolio As a Single Pool of Assets

To manage your portfolio online, you’ll want to look to your online portfolio manager to help you make “asset allocation” and “asset selection” decisions across all your accounts, including any 401(k) or other employer-sponsored plans..

What does that mean? We’ll go into detail about those two things below.

But in a nutshell, here’s what you should understand:

You’ll need guidance to help you decide how to diversify your portfolio among stocks, bonds, commodities and other types of investments.

After that, you’ll need even more guidance to help you pick the underlying funds that represent each of these asset classes.

You’re still not done. You’ll also need help periodically rebalancing your portfolio.

These activities are the core components of goals-oriented online portfolio management.

Fortunately, there are comprehensive tools and services for online portfolio management. Jemstep’s Portfolio Manager, for example, gives you an optimal asset allocation and specific buy-and-sell advice that’s custom-tailored to your situation and preferences. Plus it keeps you on track with rebalancing guidance.

Let’s learn more about each of these core components of a strong online portfolio management service.

#1: Personalized Data: Let’s Talk About You

Any company offering online portfolio management services should give you a questionnaire to help define your investment goals and optimal risk level.

Many factors enter into this equation, from your age, family status and income level to how you psychologically deal with the prospect of a large financial loss.

A great online portfolio management service will integrate your personal questionnaire with the advice that it gives you. Does it just give you boilerplate advice based on tired rules-of-thumb? Or does it give you custom-tailored advice?

#2: Asset Allocation: Your Portfolio Management Service Should Slice the Pie

An “asset class” is a broad category (classification) of an asset. Each asset class has its own characteristics, like volatility and correlation to other asset classes. Examples of asset classes include domestic stocks, foreign stocks, large-cap funds, small-cap funds, government bonds and junk bonds.

You’ll want to diversify your portfolio around your specific goals within an appropriate level of risk.

Think of your portfolio as a pie, with each “slice” being a different asset class. A great online portfolio management service should help you slice the pie.

#3: Asset Selection: Your Fund Choice Matters, and So Do Fees

Mutual funds, index funds and ETFs (exchange-traded funds) are the most common ingredients in a long-term, goals-oriented portfolio.

Whatever online portfolio management service you use should offer the widest possible access to this universe of funds, along with recommendations on what to buy and sell and tools to help you evaluate among the choices . Those tools should weigh your goals and risk tolerance against your asset allocation and the tax structure of your accounts. Combining all that data, it should crunch through thousands of funds to find the ones that will perform optimally for you.

Don’t forget about fees: they are a critical part of the equation. Fund manager fees and other expenses come directly out of the return that would otherwise be going towards your financial future. In short: Fees matter.

The Internet has changed the way we do many things, including managing our money. It can be a great time-saver and empower you with valuable knowledge. But, as with just about anything else online, you get the good, the bad and the ugly. Make sure you use a trusted online portfolio management service. It can make all the difference.

Have you gone online for portfolio management services?