It can be shocking to look at how we spend our time. It’s common for successful people to look at their investment portfolios as a hobby – but should it be that way for you?
Here is an estimate of how much time it will take you as a DIY investor to manage your money and this may still not be enough to get the job done.
Market Research – 20+ hours per month
Before you invest a cent of your money, you’ve got a have an idea of where the market is headed. There is a myriad of factors to evaluate and each one of them is no simple subject.
- Think interest rates are going to rise? Read the Fed’s Beige Book
- Is the recent bout on market volatility going to sustain?
- Are we heading for a recession that could depress market prices?
- What about international currencies – what’s the dollar going to do versus the rest of the world?
The commitment to staying on top of all of this is not minor – it goes way beyond watching CNBC and what the headlines say.
If you really want a sound footing for your investment decisions, the macroeconomic research alone is estimated to be 20 or more hours a month.
Stock/Shares Research – 15 hours per month
Once you figure out where the market is headed, you’ve got to find ideas that capitalize on those trends. Moreover, you will have to stay on top of current events. Even a minor company change could catapult a stock into double digit losses. At any moment you could be called upon to react and if you’re not prepared the market can be very punishing.
Let’s say the average investor holds, at the very least, a portfolio of 15 positions. What does it take to monitor and research all the possible movements each one could take? You’ll have to stay on top of things like:
- Corporate actions
- Dividend changes
- Mergers and acquisitions
- Spin-offs and split-offs that change company structure
- Financial ratios such as P/E ratio, debt/equity ratio, etc.
On a monthly basis this should amount to at least one hour per position, or 15 hours a month.
Portfolio Trade Analysis – 5 minutes per stock per day or 25 hours per month
Some people may take trading at face value but the timing and costs associated with this activity can have a great influence on your portfolio.
For an active investor, having your portfolio priced up to date with the right market data is important. You may say, “But that’s what Google Finance is for!” Price data can be free on the Internet, but in many cases you are getting what you pay for. You may need to call upon a variety of sources in order to find the right price.
And then there’s the daily time commitment required (for active investors). For a 15 stock portfolio, you would need to look up 15 prices at least once a day to detect trading opportunities. On a monthly basis, you would need to evaluate data such as high/low and other trading patterns for the purpose of routine price targeting.
One issue closely related to portfolio trading is performance. It’s important to keep tabs on your portfolio’s performance. Even if you don’t plan on doing much trading, having an awareness of which investments are doing well which (and which aren’t) is necessary to ensure that your results align with your long term goals.
At least on an annual basis, look at how your portfolio has done by position and also as a whole. It’s also useful to look at which sectors and investments have outperformed or underperformed and integrate those results in with your macroeconomic views.
Add five minutes per stock per day to allow for the proper portfolio transaction analysis to be conducted.
Portfolio Rebalancing – 1 hour per month
In addition to portfolio trade analysis, you need to take into account portfolio rebalancing as well.
As life changes, the level of risk you are comfortable taking is subject to vary. Likewise, the market changes and this can throw off the balance between the types of investments in the portfolio. For example, in an up market, equities will tend to do better which may create a more aggressive tilt.
Failure to rebalance your portfolio can cause your investments to misalign with your portfolio long term goals. Small deviations are easy to ignore but once large variances occur it may be more costly to fix.
Once a month you need to look at the performance of each position as well as how much weight they have in your overall portfolio. That means more calculations, price updates, and looking at each position’s performance in percentage terms.
Take, for example:
- If you have over 50% gains in a position, it’s time to take some profits and sell half.
- If you lost 30% or 40% in a position, and yet you still believe in that position, it’s time to buy more to leverage future gains.
Rebalancing trades like these can have a big impact on a portfolio and need to be constantly attended to in order to make sure your investments are in line with your initial investment objectives.
Plan to dedicate at least an hour a month to portfolio rebalancing.
Tax Loss Harvesting and Optimization – 1 hour per month
As your portfolio fluctuates due to market volatility, positions may rise or fall above or below the original price they were purchase at, which is called their cost basis. If positions are allowed to run up too high, it can mean a huge tax bill when you eventually decide to sell. On the other hand, positions that are below their original cost can be used to offset gains that have accrued.
There are other ways to optimize a portfolio from a tax standpoint as well. For examples, trades must be strategically planned to take into account whether the realized gains or losses are long or short term in nature.
All of this entails quite a bit of detailed analysis. Plan on 1 hour a month for tax optimizing your portfolio.
Sum total of how much time it takes to manage your own money
Given that it theoretically would consume an estimated 40 to 60 hours (or more!) per month of a person’s time, is DIY the best way to go when it comes to your money?
Let’s look at the consequences. Spending all of this time would mean dedicating what is equivalent to one full work week of your time to doing all the things you need to be doing. If you don’t spend this time, you may face some pretty serious consequences: poor performance, loss of value to trading fees, a portfolio that doesn’t achieve what you wanted it to, or a higher than anticipated tax bill.
Neither situation is optimal for most people. The good news is that there are ways to simplify the process without spending a fortune.
Many times people shy away from using a professional money management service when the reality is that there are stress-minimized options that may make sense. A digital advisor service can be used to simplify the process by building a portfolio based upon your personal risk assessment. These platforms take care of tasks such as:
- Updating and monitoring your positions’ market value
- Initiating and processing your trades immediately when needed
- Automatically rebalancing your portfolio as needed
This is the advantage of automation – higher productivity with less time invested.