Your investment providers create investment statements monthly or quarterly. Whether you get those statements online or by paper, it’s smart to review that information to make sure your money is doing what you want it to do. Understanding these reports is a skill that anybody can learn, and with this article, you’ll know what to look for as you read your portfolio statements.
To understand what’s going on with your money, follow these steps:
- Get a high-level overview.
- Review account activity.
- Evaluate your performance.
- Take note of fees.
- Confirm your risk level.
- Make sure you’re getting the most out of your account.
Summary Information
Most statements start with a summary of what happened since your last statement.
- Period covered: Start by figuring out if this is one quarter, one month, or a year-end statement. Year-end statements typically show information for both the full year and the last month or quarter.
- How much you have: See your total account balance and any change (in dollar terms) since the last statement.
- Performance: Find out if your account value increased or declined. The statement might show your returns as a percentage. These changes can come from market movements or dividends and interest you earn.
- Additions and withdrawals: Get a quick summary of how much money went into your account and how much came out. Withdrawals might be from your activity or from fees in your account.
- Total change: The total change resulting from everything above (investment income, contributions or withdrawals, market gains or losses, and fees).
Multiple Accounts?
If you have multiple accounts with the same investment provider, things can get confusing. Note whether you’re reading a summary of multiple accounts, or you’re just viewing one account at a time. Statements should always break down each account individually. For example, you might have:
- Individual accounts
- Joint accounts
- Traditional or Roth IRAs
- Other accounts
Each of those different account types is a different “registration.”
Where Your Money Is Invested
With a quick read through your statement, you should be able to see what you are investing in. Statements often include a pie chart that summarizes your holdings, but that might or might not be helpful. You’ll also want to look at the detailed list to truly understand what you own.
Why? If your statement just shows a broad category like “Equities,” that could refer to a wide range of holdings. Some of those equities might be individual company stocks. Others might be exchange-traded funds (ETFs) that are broadly diversified or primarily in bonds—and might be less risky than an individual stock.
We’ll discuss your holdings and risk level in more detail below.
What Happened During the Period
Your statements should list every transaction since your last statement. While a summary (described above) is helpful, you also want to drill down into the details. You may have questions like:
- On what date was that deposit?
- I don’t remember taking any money out. What is this withdrawal for?
- Am I getting dividend payments every month?
Your transaction history tells you more about your account activity. It should include dates, descriptions of each transaction, specific investments involved, and more (share prices, quantity, and more, in many cases).
Dividends and Interest
In addition to any transactions you request, some things happen in your account automatically. You might receive dividends and interest payments from certain investments, and those show up as transactions. You might even reinvest those dividends, buying more of the investment that paid out earnings.
Other Activity
Occasionally, investments mature, merge, or otherwise change. When that happens, you typically receive notice before the event, but it’s easy to miss those communications. Reading through your portfolio statement can explain cases where one fund merges with another, a bond matures and becomes a significant amount of cash, and so on.
Performance
Reviewing your performance is tricky. On the one hand, you need to know how your investments are doing. On the other hand, watching performance too closely can lead to overactive investing and anxiety.
If you’re saving for something that’s more than 10 years away, it’s easy to overdo it. Reading your retirement account statements with an eye on performance every quarter is probably plenty for most long-term investors. It might be a bit much, actually. As you near retirement, it makes sense to monitor things more frequently.
Your investment returns are a result of several factors.
What the Markets Did
Broad market movements might determine much of your performance. Especially if you’re well diversified, it’s reasonable to expect that your account will move similar to the markets. So, if your account balance declines, check to see what the stock market did during the same period. Account statements often show benchmarks (using a market index that attempts to portray the stock market) to help you with this comparison.
If you’re investing in individual stocks or sectors, this gets much more complicated. Your performance might be driven by specific events that were not a factor for the broader markets.
Risk Level
The amount of risk you’re taking affects how much you participate in market movements. If you have 100% of your account in an S&P 500 index fund, your performance should look very similar to that index. But adding in lower-risk investments, like bonds and cash, can reduce volatility—for better or worse.
It’s critical to know how much risk you’re taking in your accounts, and to take an appropriate amount of risk. This questionnaire, developed with input from psychologists, can help you do that.
Investment Selection
The investments you choose can also affect your performance. If you happen to be in investments that did particularly well (or poorly), that affects your account balance. Other factors are often more important to your long-term success than specific security selection. But in some cases, the investments you choose are a big deal. Again, focusing on certain companies or industries can result in outcomes that don’t match what’s happening in the economy and the markets as a whole.
Fees
Any fees that come out of your account affect performance. Some fees are invisible—but you’re still paying them—and others are shown to you clearly. If you don’t see any fees or you don’t know how much you’re paying, that’s not a good sign.
Reading retirement account statements to understand fees can be especially difficult. But service providers are still supposed to disclose fees, so if you have a 401(k) plan, you should be able to find that information. Ask for a fee disclosure statement, which will help you get started.
Fees aren’t necessarily bad, but they need to be reasonable. If you’re paying for something and it’s not worth the value, it’s time to reevaluate your options. When you’re investing on your own or with a financial advisor, you may have a substantial amount of control—you can change what you pay and choose better providers. But when you’re in a workplace retirement plan like a 401(k) or 403(b), you have less control.
Get the Most Out of Your Account
Reach the Maximum
Checking in on your accounts can help you discover opportunities. For example, retirement account statements often tell you how much you’ve contributed for each tax year. Since the IRS sets maximum annual contribution limits, it’s often smart to be sure and maximize your contributions.
Look for a section on your statements called “Retirement Summary” or similar, and see if you’re contributing enough to reach the maximum limit. Don’t forget that your HSA, if you’re eligible to use one, can also be a retirement savings tool.
Monitor Cash Levels
You might also be surprised by how much cash you’re holding. Assuming you actually want to invest in your investment accounts, holding cash there might not make sense. That’s especially true if your investment provider doesn’t pay much interest on your account balance.
When investments mature or pay out earnings, you may build up a substantial amount of cash. If you find a cash allocation that’s higher than you want, a few options include:
- Investing that cash
- Moving it to an online bank account
- Doing something else with it
Watch Cost Basis
Your statements may also tell you about your cost basis in taxable accounts. With that information, you might learn several things. While you need to review strategies with a professional before doing anything, a few ideas you might discuss are:
- If you have losses in your account, you can potentially harvest those losses to reduce your taxable income.
- You can see which investments have long-term capital gains, as those might generate less of a tax burden than short-term gains if you need to sell and generate cash.
Annuity Statements
If your money is in an annuity, you may see several additional pieces of information.
Surrender Value
If you decide to cash out, the surrender value is the amount you would receive from the insurance company after they charge surrender fees. Those fees often decline over time, so it may be worth waiting—or taking a partial withdrawal—to reduce those charges. Call the insurance company and a financial professional for help understanding how to avoid those fees.
Other Values
Annuities can be complicated and have a variety of “hypothetical” account values. Those account values don’t necessarily tell you how much money you can walk away with if you cash out. Instead, they may be linked to income guarantees in your annuity. The amount of income you receive may be calculated from those balances, but you have a different account value that would potentially be available for withdrawal.