Portfolio Toolbox
stocks bonds sell buy retirement investing long-term portfolio rebalance Roth IRA strategy yield 401k ETFs risk asset allocation mutual funds visualize U.S. Treasuries taxes performance backtest expenses indexing S&P 500 dividends income assets time money

Investing Basics

During my first few years of investing, I learned some of the basics. The first is mutual funds are a collection of investments in multiple institutions to reduce the risk of any single institution going out of business. Remember Enron and WorldCom? While mutual funds are mathematically guaranteed to never have the best performance, they are also mathematically guaranteed to never have the worst performance. Mutual funds hold stocks, bonds, cash and / or alternative investments in order to meet their investment objective and seek to provide the market return of their objective. For example, an S&P 500 mutual fund seeks to track the performance of the top 500 companies by market capitalization. When the news talks about the stock market going up or down, they are commonly referring to the S&P 500.

Asset Allocation

The next thing I learned about is asset allocation. Asset allocation is the percentage of stocks / bonds / cash that you hold in your portfolio. The most important decision you can make that affects the outcome of your investment strategy is to determine your target asset allocation. A 100% stock portfolio usually provides the highest returns over time; however, it has the possibility to lose the most amount of money. A 100% cash portfolio typically provides the highest safety for your money in exchange for the lowest returns over time. A mixture of stocks and bonds provides the investor the capability of rebalancing when your portfolio's actual asset allocation deviates from your target asset allocation. A 60% stock / 40% bond portfolio is a very popular asset allocation for getting good returns with lower volatility / risk. Asset allocation is often visualized as a pie chart.

In general, a younger person has more time to invest and should be invested more in stocks for growth, while an older person who has less time to invest should be invested more in bonds / cash for stability. This is a simplistic view of asset allocation and is sufficient for an investor who is just starting out.


Let's say you invest $1,000 each in stocks and bonds. After a year, your stocks are worth $1,100 and your bonds are worth $1,050. To rebalance, you take $25 from stocks and invest in more bonds, effectively forcing you to sell high and buy low. You can rebalance based on a certain time interval (e.g. on your birthday) or when your asset allocation deviates from your plan by a certain percentage (e.g. 3%). The optimal rebalancing strategy varies depending on your actual portfolio holdings. You can backtest different strategies to see what has worked well in the past. Past performance is no guarantee of future returns.

Later in life, I learned there are better ways to look at asset allocation to create a risk adjusted portfolio to mitigate risk. This can give you the opportunity to outperform a 100% stock portfolio with less risk if you choose the correct bonds and rebalance at 1% deviation from 60/40.

After changing jobs in 1999, I was eligible to rollover my 401k to a traditional IRA. There was a local money matters radio show that I listened to on Saturday mornings. I had been listening to it for a couple of years and I thought the guy was a straight shooter because he said his company does not charge any "wrap account" fees that his competitors charged, and he doesn't use funds that charge 12b-1 marketing fees, so it made him look like an ethical guy that told the whole truth. Not knowing any better, he helped me rollover my 401k into loaded mutual funds with Massachusetts Investors Trust, the company that invented the mutual fund in 1924. The financial planner also opened taxable accounts in my name with other loaded mutual funds from several other companies. The financial planners were really nice people and filled out all the investment forms for me, all I needed to do was sign where the stickers were and cough up the money. Looking back on this, I should have figured out that anyone who makes something really easy for you must really be benefiting from the transaction. A few years later, this financial planner also sold me a variable annuity product, which I later found out was a very profitable deal for the financial planner.

Portfolio Tracker

In December 1999, I created Portfolio Tracker to track my own portfolio. The tracker was private, and it allowed me to track my portfolio symbols and shares. Every evening after the markets closed, my program would fetch stock quotes off Yahoo! Finance and update my database and send me a text message with my portfolio total and how much it changed that day. I shared the web page with my friends and they were able to track their portfolios too. It wasn't until 2014 that Portfolio Toolbox was created. In 2020, this web site got a major upgrade when COVID-19 hit and I had some time on my hands to learn responsive web design and Google Charts. Portfolio Tracker is now available to the public.

In March 2000, the dot com bubble burst and the NASDAQ lost 78% of its value through October 2002. This was my first real bear market. Luckily, I was in my accumulation phase, and I got to buy stocks "on sale". September 11, 2001 was another catalyst to drive the market even lower. I stayed the course and was able to recover my portfolio because I didn't sell anything.

A major reason for the dot com crash was companies spent $2 trillion worldwide investing in technology companies to prevent the Y2K problem. The Y2K problem needed to be fixed because a number of computer programs used two digits to store the year instead of four, and it broke logic of programs when the year rolled over from 1999 to 2000. The Y2K problem was largely a non-event however. This is mainly due to the fact that $2 trillion was spent on new hardware and software to solve the problem, so what did you expect? In the five years following the year 2000 many companies were still depreciating the cost of new hardware in their environments and very little capital was spent on technology as a result.

As the years went by, I did my best to max out my 401k contributions at work and opened a Roth IRA and maxed it out as best I could. One of the recommendations my financial planner gave me was to always defer taxes. This meant maxing out my 401k to reduce taxes and invest more. This is a core tenet of my investing strategy to this day. While avoiding taxes completely is impossible, minimizing taxes is a simply a goal. If you are saddled with a huge tax bill because of investing, you should be happy because you actually made money. (just make sure you set aside some of your profits to pay taxes!)

After several years with multiple investment companies, account statements and dividend taxes to pay, I was thinking to myself, there has got to be a better way. My financial planner invested me in loaded mutual funds which had a surrender charge for selling before seven years. Moving money between investments? Forget about it! The fees were too high. My investing situation had become too complex. I built an expenses tool that visualizes the impact of management fees, sales charges and expense ratios in an attempt to dissuade investors from getting involved in loaded mutual funds. There are plenty of no-load mutual funds available which don't charge loads for the privilege of investing with their company. (and they typically outperform loaded mutual funds to boot!)