What can playing chess blindfolded teach you about brokerage statements? A lot!
When writing Rich As A King with Susan Polgar, I asked her how she could remember all of the pieces on a chessboard without looking. She laughed, and when she explained how she managed the feat, I realized that certain parts of her technique could be applied to handling investments.
Don’t obsess on the pieces
Chess players don’t memorize a board by saying to themselves, “The rook is on A1. The knight is on B1. The bishop, C1….” Rather, they examine the structures in place and the overall flow of the game. They compare the board to another game they have played. They envision hot spots, safe areas, and well-known positions. They chunk data together so that they only need to see a few packages of information, rather than 64 disparate facts.
Conveniently, brokerage statements help investors by organizing the important information in categories. If you find the statements confusing, take heart, you aren’t alone.
Take the time to learn how to read your statements and this will make the analysis of your portfolio much easier.
As Maria said in the hit musical, The Sound of Music, “Let’s start at the very beginning.” On the first page of your statement, you will most likely see:
- Opening/closing balance. This simply tells you how much you started with at the beginning of the month and how much you’re worth at the end. Normally this figure won’t change dramatically. The figures that will cause a change in the account value include any change in the value of the investments, dividends and interest paid, fees subtracted, deposits you’ve made, and withdrawals (with wires, debit card payments, or checks written). Each of these figures is normally summarized on the first page, too.
- Asset allocation. Your brokerage firm hopefully provides some type of pie chart or general summary of how you’ve invested. Look at the information to see the percentage of your portfolio in stocks, bonds (often called “fixed income”), mutual funds, exchange traded funds, and cash. Ask yourself if you are comfortable with the division. If you’re overweighted in one area, such as in stocks (called “equities”), question whether you want that level of risk in your account.
Got a lot in cash? Maybe it’s time to put that money to work by investing it since these days cash pays almost no interest. Heavy exposure to mutual funds? What kind of funds are they? For that, you’ll have to look further on in the statement.
Do you need to read the whole statement?
Though I encourage clients to read the whole statement, I realize that not everyone studies it as carefully as he should. If you have a checkbook or debit card attached to the account, check the transactions monthly to make sure there is no fraud. If you fail to promptly report fraudulent charges in your account, you will suffer the loss.
If there are changes in the account value that you don’t understand, examine more details of the account. For example, if you see the market is rising, yet your balance is dropping, check out the specific positions you have. Pick up the phone and call your advisor to get an account review.
Additionally, brokerage firms often put announcements in the statements they send out, so when reviewing your paperwork, see if they’ve informed you of something important.
A free video on reading brokerage statements
I’m currently working on a short video to teach people more about reading their statements. This video is one section of a larger online course. To watch this specific module, send me an email (doug@RichAsAKing.com) and let me know that you’re interested. I will send it to you when it’s finished.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You A Grandmaster of Investing, avid chess fan, international investment advisor and Certified Financial Planner (CFP®)