Using Scottrade Portfolio Manager's Asset Allocation Tools
There are two tools inside Scottrade Portfolio Manager that can help you determine the right asset mix for your goals, time horizon and financial situation: target models and Performance Review charts.
Scottrade Portfolio Manager offers five different target models, each with pre-defined asset allocations, to give you a framework for determining your asset mix. Each target model was created based on a different investment strategy (from conservative to aggressive), and selecting a target model can provide an easy way for you to adopt a strategy that aligns with your goals. The model you select will depend largely on the information you were asked to identify in What You Need to Get Started. The number of years you have to invest will determine how conservative or aggressive you are, and you'll need to think about the amount of money you need to reach your goal when you're evaluating the return objectives of each model.
Once you select a model, you can use it as the framework for changing your portfolio's allocation to align with your goals. Target models offer you an easy way to reallocate your positions using an established investment strategy and ensure that your asset allocation aligns with that strategy. When you're thinking about this step, you should also be considering how much money you have to invest now and how much money you can contribute each month. It's important to make sure your asset allocation continues to align with your strategy as you make regular contributions to your portfolio. Investing all your new contributions in one area of the market may cause your asset allocation to change without you realizing it.
Once you've determined your asset mix, Scottrade's Performance Review charts provide a way to backtest different asset allocation strategies and investment combinations to see how they would have performed in the past. When you use this tool, you can enter a starting value, or the amount of your original investment, to see how that investment would have performed according to the asset mix you selected and whether or not you would have met your end goal using that asset mix.
Limitations of Asset Allocation Tools
While online tools such as Scottrade Portfolio Manager certainly make asset-allocation decisions easier, they have their limitations.
For example, if you use six different online asset-allocation tools, you're likely to get six different recommendations for what your asset mix ought to be. Why? Because every tool uses a different set of assumptions.
Another important limitation to be aware of is that most online asset allocation tools don't take taxes into account because each investor's tax situation is different. But, in the real world of investing, taxes are a huge issue. Remember that the final portfolio values you get from whichever asset allocation tools you use are generally pre-tax.
You'll also need to keep in mind when using tools such as our Performance Review charts that past performance is no guarantee of future results.
Despite these limitations however, Scottrade Portfolio Manager is a critical tool that can help you take control of your own financial future and manage your portfolio according to your goals. It can provide you with an asset allocation strategy that helps address your goals and time horizon, and it provides the tools you need to stick to a disciplined investing plan.
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Past performance of a security or strategy does not guarantee the security or strategy will be successful in the future. Results could vary significantly, and losses could result.
The analytical tools described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision.