Updated. Automated portfolio management services like Wealthfront and Betterment will help you manage a diversified portfolio of low-cost index funds for a fee. While I understand their appeal for those that wish to outsource that task, I choose to maintain my own diversified portfolio of low-cost index funds. I enjoy having full control of all investment decisions, and I like saving the management fee (and adding that money to my snowball).

An important part of this DIY portfolio management is staying close to your target asset allocation. I use a very simple Google Spreadsheet to track my portfolio. Here is the direct link and it is also embedded below. Yellow cells are those meant to be edited.

(Download a free copy: I am sharing this spreadsheet online – free of charge – in read-only format. However, please make a copy of it using the menu option File > Make a copy or download it as an Excel file using option File > Download as). Any requests for edit access to the original public spreadsheet will be denied, because you would be changing the appearance for everyone.)

Here are some guidance on how to use the spreadsheet:

1. Decide on a target asset allocation. Don’t use the generic one I put above. There is no perfect portfolio. You can find plenty that look great based on history at this moment, but that will not be the perfect portfolio 5, 10, 25 years down the line. The best portfolio is the one that you can stick through even after your fanciest asset classes have negative returns for 5+ years.

Here are a few model portfolios to get you started. Below is what I have settled on for myself. Details here. You only have to enter this once as long as your target asset allocation stays the same.

2. Enter your total balances for each asset class. The easiest way to grab my holdings from multiple brokerage accounts is to use a aggregation service like Personal Capital (review). If you don’t have that many accounts, simply log into each individual website and add up your totals by asset class.

You could solely rely upon a service like Personal Capital to manage your portfolio, but I tend to use some specific asset classes like “US Small Value” or “Emerging Markets Value” which Personal Capital does not recognize. I do enjoy the fact that it pulls in all of my holdings and balances automatically into one screen and is always updated.

3. Check out the actual breakdown vs. your target breakdown. The spreadsheet shows the current actual percentage breakdown vs. your target breakdown, as well as the dollar amounts of any differences. A positive number means you need to buy more to reach your theoretical target (negative means sell). In the fictitious example shown, I might feel that I was close enough that I wouldn’t really bother with any rebalancing. If things were really off, I could buy/sell as needed.

3. Rebalance with new cashflow, dividends, and interest. Choose your frequency of “forced” rebalancing. By using this spreadsheet, you can see which asset classes should be invested in currently to bring you back towards your target asset allocation. This is where you should invest any new cashflow (i.e. paycheck, dividends, rental income, or interest that your portfolio generates).

In addition, you can rebalance by selling some asset classes and then buying another. I try not to sell too often as to avoid capital gains taxes. You can do this on a set calendar basis such as annually on your birthday or quarterly. Another method is to only rebalance once your percentages are off by a certain amount, like a tolerance band of +/- 5%. I personally check in quarterly to see where I should invest any new cashflows, and if things are really off then I rebalance by selling something at most once a year. If you have sizable taxable holding, you could also attempt some tax-loss harvesting during these check-ins.

Recap. If you are managing your own portfolio, it is important not to stray too far from your target asset allocation. In order to know where you should invest new funds, I track my portfolio in two ways. First, I use Personal Capital for a real-time, daily snapshot of my holdings. Second, I manually update this spreadsheet each quarter and print out a copy for my permanent, physical records. This takes about 15 minutes every 3 months. Using these two methods, I maintain complete control over my portfolio and I don’t have to pay any management fees to a robo-advisor.

When investing in stocks and bonds, it is important to take a long-term perspective. We’ve all heard that phrase. A new tool called PortfolioCharts.com lets you create charts that make it easier to visualize the relationship between returns and holding periods. Created by a fellow named Tyler, found via The Reformed Broker.

With the Pixel chart, you can customize any asset allocation and see that portfolio mix’s returns over a multitude of timeframes. Here’s the chart for The Swensen Portfolio, which is the closest “lazy portfolio” to my personal portfolio – 30% US Total, 15% Foreign Developed, 5% Emerging Market, 20 US REIT, 15% 5-Year Treasuries, 15% TIPS.

You can see that depending on your starting year, the returns over the next 1-9 year period could be pretty rough. But as long as you held for 10 years or more, you always got a positive real return above inflation. You can also see that the often-promised 5% real returns aren’t always guaranteed, although historically if you held on for 20+ years your odds were pretty good.

You may recall a similar style of chart from the NYT and Crestmont Research which includes additional data going back to 1920:

My favorite style is the Funnel chart:

The Funnel chart shows the changing uncertainty of compound annual growth rates over time. This demonstrates how long you may need to hold a portfolio to experience the average long-term returns it advertises. It also provides a nice snapshot of the range of 1-year volatility.

Here’s the Funnel for the same Swensen Portfolio:

The funnel chart also supports the notion – in an even simpler way – that if you can take a long-term perspective, your risk of losing money should decrease. Here’s a similar chart from the classic investing book A Random Walk Down Wall Street that was one of my early blog posts:

Finally, the Hurricane chart allows you to simulate what would have happened to your portfolio balance if you made annual withdrawals, such as in a retirement scenario.

Warren Buffett is another famous supporter of taking the long-term view. From a recent CNBC interview:

Buffett, who looks to buy stocks or business for their long-term prospects, said recent weakness in the market does not concern him.

“Stocks are going to be higher, and perhaps a lot higher 10 years from now, 20 years from now,” he said, adding that’s why he does not try to time the market.

Hopefully for those investors with a long runway ahead of them, this new tool will help you view your portfolio in a more patient manner. I’ll try to remember it when the next market panic arrives.

In the current environment of historically-high US stock valuations and historically-low interest rates, there is a lot of discussion about what investors should expect in regards to future returns. Predictions are a dime a dozen, but some are better supported than others. Research Affiliates has interactive Expected Returns tool where they freely share both their forecasts and detailed methodology. For example, here is a PDF of their equities methodology.

1st Quarter 2015 Equities 10-Year Forecast. Currently, their forecast for equities predicts that US Large-Cap and US Small-Cap stocks will have expected real (inflation-adjusted) returns of below 1% annually. Developed European and Asian Country stocks (MSCI EAFE) have significantly higher numbers, while Emerging Markets as a whole offer the best risk/return ratio (Sharpe ratio). I’m not into single-country bets, but it appears Russia is the one to take if you have a high appetite for risk.

1st Quarter 2015 Fixed Income 10-Year Forecast. Currently, their forecast for fixed income predicts that both long and short US Treasuries will have expected real (inflation-adjusted) returns of basically zero. You might get under 1% real with a broad US bond fund like AGG or BND, or reach for a little more return with a high-yield junk bond fund but with roughly the same Sharpe ratio. The gambler’s choice appears to be Emerging Markets currencies (EM money market funds), which they predict will appreciate relative to the US dollar in the next decade. This is followed by Emerging Market bonds issued in local currency.

I like reading the theories and fundamental arguments for these forecasts, and consider the numbers as part of the big picture but not necessarily something to act on directly. I also keep track of other forecasts, including the follow which were previously mentioned on this blog – Jeremy Grantham / GMO 7-Year Forecasts (free registration required) and the Rick Ferri / Portfolio Solutions 30-Year Forecasts. The most recent GMO numbers also give the expected-returns edge to Emerging Markets in both the stocks and bond worlds (risk is not directly assessed).