How To Read Your Investment Statements

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How To Read Your Investment Statements

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February 07, 2013

You have a college degree from a good four year school.   Perhaps you went on to get an MBA from a fantastic post graduate program.   A few of you have even acquired that coveted PhD!  Yet, every month millions of Americans are still confused on how to simply read their 401(k) and brokerage investments statements. Those twenty-five pages of information can have you so mesmerized that it makes it feel like you are reading Atlas Shrugged.    So how do you decipher what exactly is happening with your portfolio when you get your investment statements?   What should your financial advisor or 401(k) vendor be providing to you?

Well, most statements from investment companies are incredibly hard to read despite the fact that these companies spend millions of dollars trying to improve them.    The first thing is that many statements will have some bar chart or line graph showing the total account value of all of your accounts as well as where the amounts were over the course of the last year.   Don’t get fooled into thinking you are doing better or worse if the graph on page one has spiked up or down.   You need to think through whether you added to your account or withdrew money from your account over the course of the past year.    From a real performance perspective, your investment advisor should be able to show you exactly what you began with a year ago, what was added or withdrawn, and what your overall performance net of fees was during the year.   If you can’t get this data from your financial advisor, I’d be making a quick exit stage left (as Rush would say).

Most statements are broken down by account type such as Joint account, IRA account, or your children’s account.   There will usually be some large pie chart showing you how much money is in cash, fixed income, equities, and mutual funds.    Different statements will report how assets are diversified within all accounts, but for the most part you will see some type of pie chart explaining the overall asset allocation.

Statements have become longer over the years because there is more reporting on all activity within all accounts in an investment statement.   As you view each area, you want to read the line items for important areas such as fees charged, transactions made, and income/dividends received during the period.

It should be very clear to you if the fees match what it is that you think you are being charged.   I noticed recently when reading the statement for a client from a large wirehouse firm that they charge a $95 maintenance fee on all accounts irrespective of how many accounts that the client has with the firm.   If you carry ten or twelve accounts, this can be over $1,000 in fees per year.    In another instance, the client was told they were paying a 1% money management fee.   It turns out this is the fee that was going to the financial advisor, but there was another .50% going to a separate money manager and additional internal expenses within the money management strategy.

You also want to scan each line item to ensure that the positions within the portfolio are consistent with your risk tolerance, time frames, and remain steady with the discussion you had when you invested your money.  Typically if the position has six ticker symbols (i.e.- FRYSXA) it is a Unit Investment Trust.   If it has five ticker symbols (i.e. ABCDE) it is a mutual fund.   Four ticker symbols means it generally trades on NASDAQ stock exchange and three or less ticker symbols typically traded on the NYSE or AMEX stock exchange.   If you don’t understand what you own, then this is the time to get a face to face or go to meeting with your financial advisor to explain to you exactly what you own.

When it comes to examining your 401(k) statements and your overall personal ‘net rate of return’, it is paramount that you make sure the rate of return the 401(k) provider is reporting excludes both your contributions and the company matching/profit sharing contributions.    Many people don’t even bother opening their 401(k) statements or discard them if they come through e-mail as an online statement.    Today’s 401(k) statements will report the fees that you paid along with your return, so they are more important than ever to review every quarter.

It is becoming abundantly apparent to me that people are confused when they read their month to month investment statements from both workplace and personal assets.   By the time an investor gets to page ten of thirty in their monthly investment statement, they likely have raised the white flag from a lack of understanding all of the lines and what they mean.    Remember that you are ultimately paying someone, as there is no “free lunch” when it comes to investing.  Make sure your representative or Investment Company spends time in your next review going through these statements.  The more you understand about what you own, the more empowered you will feel about being in charge of your financial future.

Written by:

Ted Jenkin

CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Editor in Chief of Your Smart Money Moves

Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services

Ted Jenkin  is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

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