Do you invest in stocks? Most people would say no; they say, “we only invest in mutual funds.” And for most people that answer is wrong. Or at the very least, dangerously misguided.

That’s because the mutual funds and ETFs that we invest in usually have most, or  sometimes all, of their assets in stocks. It means that, while you personally may not be actively picking stocks, someone or some computer is. Those choices and how (un)diversified they are can give you an unexpected wallop when you can least afford it.

The good news is that by law, any single mutual fund (or a hedge fund, or anyone else for that matter) can’t own more than 5% of the stock of a single company without at least making a filing with the SEC.  So, for example, your mutual fund is prohibited from owning more than 5% of the outstanding shares of, say, Lululemon. That means in the worst-case scenario, you won’t have more the 5% of your money in any one company. While even that concentration may be too much for some, for most of us that is adequate protection from an individual company imploding.

However, if you mix investments in individual stocks with owning mutual funds, or if you own a handful of similar mutual funds, you may not be as diversified as you think you are.  And this could have dire consequences. For example, if you were unwittingly concentrated in the financial services industry in 2008 or the auto industry in 2009, your portfolio would have taken a wallop – even though you thought you were diversified by holding mutual funds.

The mutual fund companies have to file reports with the SEC’s EDGAR database that show their top holdings on a quarterly basis. However, instead of looking around in EDGAR, you can use Yahoo! Finance to input a mutual fund ticker and find out the top ten holdings, and the fund’s total assets across various industries. For example, you can see this data for the Fidelity Magellan fund. You can input other mutual fund tickers in the upper-right of the page.

You can collect this data for all of your mutual funds and put it into a spreadsheet program (like Microsoft Excel) to calculate your overall exposure for your portfolio – just remember that you must weight each fund by the percentage of your total assets that are in each fund. That way you can find out if you’re concentrated in a particular industry, or even a particular stock, even though you may own many different mutual funds.

Photo by http://www.flickr.com/photos/90389546@N00/ / CC BY-SA 2.0

One of the reasons we founded Blueleaf is that it’s simply too much work to really understand your money and manage it properly. We’re not talking about your day to day spending, though that’s not easy. We’re talking about the long-term, about how small things today make a big difference down the road and about how seemingly big things today may not be so important as the media hype machine may lead you to believe.

We’re setting out to change that by making money obvious, by telling you “this means that” in plain language, and providing complex information in simple visualizations so that you can really understand where you’re headed and what you need to do at a glance.

Allocation – teaching the lowly pie graph a new language

Allocation – How much money do you have in stocks, bonds and cash across all your accounts? It tells you more than most people expect or understand. That’s because all most people have ever seen is a pie graph without any context. That is all that most systems show you. Yet, that humble pie chart is the Rosetta Stone for your financial future.

Your allocation is the biggest driver of your financial returns, much more important than picking any particular stock or mutual fund. Your allocation determines what kinds of returns you can expect over the long run and what you shouldn’t expect. It determines how much risk you’re taking, answering the question “How much money could I lose this year (or over the next 5 years)?” Along with just a few other key pieces of information, your allocation will help tell you if you’re going to be able to retire, or send your kids to the college of their choice, or buy that boat before you’re 50. To us at Blueleaf, that “Can I retire?” question seems kind of important, and yet, why hasn’t someone, somewhere made it obvious what that lowly pie chart means?

The truth is that many have tried. There has been more written on asset allocation by well meaning academics and financial planners that any investor could read in a lifetime. And that is part of the problem. There are millions of words written about allocation in general but there is precious little about how to apply the academic work on asset allocation to our personal portfolios, our personal risk tolerances, and our personal goals.

And that is what matters to us at Blueleaf. Who wants to make our money a hobby or part-time job? That’s what it seems like it will take to sift through all that information, learn what is relevant for us then do the math manually to figure get the answers for ourselves.

So we thought, “Why not just let money speak for itself?” Why not give your money a voice and put it on stage so it speaks to you with power and clarity? Let Blueleaf do the work to learn your language so you can understand what your money is saying to you about your financial future. And that’s what we’re working to do. Blueleaf is working to teach your money to speak your language, not the other way around. We think you’ve got enough to do already.

Interested in what we’re building? Request an invitation to our free preview. And follow this blog for more to come.

Photo by: http://www.flickr.com/photos/dilaudid/ / CC BY-SA 2.0