Investment Tracking Software - dummies

By Eric Tyson

Software that can help you with investment tracking falls into one of two main groups: personal finance software that also includes investment-tracking capabilities and software that focuses exclusively on investment tracking.

The broader personal finance packages, such as Quicken, are more user-friendly and probably more familiar if you already use these packages’ other features (such as a bill-paying feature).

Reviewing the benefits

Investment tracking software offers several positive features that may appeal to you:

  • Organization: One of the best benefits of these packages is that using them can help you get organized. If you enter your investments into the program, the software can help you make sure you don’t lose track of your holdings. The fact that investors lose billions of dollars annually to escheatment — a situation in which financial institutions turn money over to the state because the owner loses track of his investment (often because the investor moved or passed away) — is testimony to the disarray of some investors’ tracking systems.
  • At-a-glance access: In addition to organizing all your investment information in one place, investment software allows you to track the original purchase price, current market values, and rates of return on your investments. If you have accounts at numerous investment firms, using software can reduce some of the complications involved in tracking your investing kingdom. (Alternatively, some of the larger investment firms enable you to centralize your investment holdings.)
  • Overall return data: Investment software can be useful for helping you keep track of your returns. Monitoring all those numbers yourself isn’t always easy. People usually know their CD and bond yields, but ask most people investing in individual stocks and bonds what the total return was on their entire portfolio, and, at best, you get a guess. It’s the rare person who can quote you total returns or tell you whether her returns are on pace to reach her future financial goals. If an investor does know her investments’ returns, she probably doesn’t know whether that return is good or bad. For example, she may feel good having made 22 percent on her portfolio of stocks over the past year, but she shouldn’t if an index of comparable stocks was up 35 percent over the same period.

Investment tracking software can be more useful for stock traders. Stock traders, the people who would most benefit from using these programs, often don’t track their overall returns. If they did, they could calculate the benefit (or lack thereof) of all their trading.

Surveying the drawbacks

You need to be prepared to make a substantial time commitment to find out how to use these programs and that you know that other, less high-tech alternatives may be more efficient and enlightening. Also know that a good portion of program users tire of entering all the required data and then feel guilty for falling behind.

If you want to see what your investment returns have been over the years, be aware that entering historic data from your account statements (if you can find them) is a time-consuming process, regardless of which package you use. To calculate your returns, you generally have to enter each new investment that you make as well as all your reinvestments of dividends, interest, and capital gains distributions (such as those made on mutual funds). Ugh!

Checking out some alternatives

If you’re not into data entry, you have some alternative routes to consider. The following list shows you what to do if you want

  • To organize: Keeping a current copy of each of your investment statements in a binder or file folder can accomplish the same result as organizing all your holdings.
  • At-a-glance access: Investment software can track all the facts and figures for all your investments — purchase price, market value, rates of return, and so on. But you can accomplish the same things by consolidating your investments at one investment company.
  • To know your overall return data: You can easily estimate the return of your overall portfolio using the old-fashioned paper-and-pencil method. Simply weight the return of each investment by the portion of your portfolio that’s invested in it. For example, with a simple portfolio equally divided between two investments that returned 10 percent and 20 percent, respectively, your overall portfolio return would be 15 percent (10 x 0.50 + 20 x 0.50 = 15). If you’re not adding to or taking money from a portfolio, you can simply compare the portfolio’s value at year end to the prior year end.

People who make investments at various times throughout the year and want to know what their actual returns were during the year can use software to get answers. However, unless you’re a frequent trader trying to measure the success of your trading, knowing the exact returns based on the precise dates on which you fed money into investments has limited value. This fact is especially true if you’re a regular, dollar-cost-averaging investor. In this situation, instead of opting for a software program, know that an increasing number of investment companies provide personal return data via their websites and/or on account statements.

And if you’re a buy-and-hold mutual fund and exchange-traded fund investor, a path that I find great value in, tracking software gives you limited benefits because of the time required to enter your data. Funds and many other published resources tell you what a fund’s total return was for the past year, so you don’t need to enter every dividend and capital gain distribution.