It has been reiterated multiple times. Many successful investors do it. What is “it” exactly? Our subject line gives you a hint – diversification. Having a diverse portfolio can help you succeed in the markets, and we are committed to your success.
That’s why we developed the Asset Allocation tool. You can see, at a glance, how diverse your portfolio is. It’s a great time saver.
Let’s review how to use the Asset Allocation tool so you can be a more powerful investor.
Getting Started
Asset Allocation is found in the Research tab in TradeStops. After you log into TradeStops, click on the Research tab. It is located just a little to the left of your name.
Working with the Asset Allocation Tool
After opening the Research tab and clicking the Asset Allocation tab, you can work with the tool. There are several sections to the Asset Allocation tool.
- Shows your active portfolio. You can switch between portfolios by clicking on the downward pointing triangle. A list of your portfolios will appear. Just click on a portfolio title to make that the active portfolio.
- Decide if you want to include cash. Simply click Yes or No to include cash or not to include cash.
- Group your positions by Sector or Industry. Our sectors and industries are defined by our data provider, and they cannot be changed or customized.
- Shows how diverse your portfolio is by sector or industry. This is where the fun begins. The different colors quickly let you see if you are too invested in one sector/industry or not.
- Defines the colors to their sector or industry.
- Shows a drilldown. If you are curious which stocks fall into a certain sector, simply click on the color that interests you. From there, you can see a list of those investments. Take note in the photo above that some stocks are “undefined.” This happens when a stock has not been trading very long, especially after an IPO.
We can look even further into the sector/industry drilldown. After you click on one of the colors in the wheel, try hovering your mouse over one of the colors in the drilldown.
Don’t be afraid to play around with it a little bit. Look at some of your portfolios and find out how diverse you are. If you are more of a thrill seeker, you might not want a diverse portfolio. If you are more conservative, you might want to change some of your current investments.
How can I change my diversification before making changes at my broker?
If you decide that you want to make changes to be more diverse, you don’t have to make the changes at your broker immediately. You can try making some changes in TradeStops to see how the changes might affect your investments.
Try making a copy of your investment portfolio. You can do this from the Portfolios tab. Simply click on the white box to the left of the portfolio that you want to copy, and then click Duplicate.
Keep these things in mind
Sectors are broader market groups, such as “Health Care” or “Information Technology.” Industries further define sectors into specific market groups, such as “Health Care Equipment,” “Pharmaceuticals,” or “Internet Software.” Options will be designated in the sector or industry of its underlying symbol.
Again, our data provider defines these sectors and industries for us. We are not able to edit them for you or make changes to them.
Funds and ETF’s, by their nature, may contain a basket of stocks from multiple sectors and industries. These will just be labeled “Fund” or “ETF.” To get a better understanding for your Fund and ETF allocation, you can review this article. Our Director of Education, Tom Meyer, goes into further detail on how to utilize the Asset Allocation tool with ETF’s and Funds.
Check your diversity today
As Harry Markowitz, the Nobel Prize winner for modern portfolio theory, says, “Portfolio theory, as used by most financial planners, recommends that you diversify with a balance of stocks and bonds and cash that’s suitable to your risk tolerance.”
Use the Asset Allocation tool today to review your current portfolios. You might find that you are too heavily invested in one sector or you might find that your portfolios are very diverse. In the end, stay true to your investing strategy and your risk tolerance. Just know, TradeStops can help you along the way.
To diversification,
Customer Success Team
