Portfolio accounting refers to the process of tracking, reporting, and managing the financial transactions and positions within an investment portfolio. It also encompasses a variety of other tasks and responsibilities.
Most brokers have at least a basic in-house portfolio accounting system that you can utilize to track the performance of your investment portfolio. They generally take care of the following:
Transaction Recording: Every purchase, sale, dividend received, interest earned, and other financial transactions associated with the assets in the portfolio need to be documented.
Position Tracking: Monitoring the quantities and values of each asset class in the portfolio is essential. This includes understanding how positions change over time due to purchases, sales, corporate actions like stock splits, and other factors.
Performance Measurement: Portfolio accounting systems often provide tools to measure the risk-return dynamics of the portfolio over specific time periods and in comparison to benchmarks or other standards.
Valuation: Knowing the market value of the assets in the portfolio at any given time is essential. Regularly updating asset prices using market data feeds or other sources is part of this.
Income Tracking: Many assets in a portfolio, such as stocks, bonds, or mutual funds, generate income in the form of dividends or interest. Portfolio accounting involves tracking this income and attributing it correctly to the relevant assets.
Tax Reporting: Investments, especially mutual funds, often have tax implications, whether it’s capital gains from selling an asset at a profit or tax-deductible losses from sales. A portfolio accounting system will help track these events and generate necessary reports.
Reporting: Investors need regular updates on their portfolio’s performance, composition, and other metrics. Portfolio accounting systems often include features to generate these reports tailored to individual needs.
Reconciliation: Ensuring that the portfolio’s records match external data sources, like custodian or broker statements, is vital. Any discrepancies need to be investigated and resolved.
Handling Corporate Actions: Corporate actions such as mergers, acquisitions, dividends, stock splits, and others can impact the assets in a portfolio. Properly accounting for these events maintains an accurate portfolio record.
These systems are designed to handle large volumes of data, complex financial instruments, and integrate with other systems like trading platforms and market data providers. The goal is to provide investors and money managers with accurate, timely information about their investments to make informed decisions. You could also sign-up to a stand-alone web-based tool or app, if your portfolio is spread over many different brokers.
Do I Need a Portfolio Accounting System as an Individual Investor?
Your need for a stand-alone portfolio accounting system, tool, or app, as an individual investor depends on several factors:
Complexity of Your Portfolio: If you have a simple portfolio with just a few assets, manually tracking them might suffice. But for more complex portfolios with various asset types, multiple accounts, frequent transactions, or assets across different countries, a dedicated system is beneficial.
Frequency of Transactions: If you’re a frequent trader or involved in index investing, a portfolio accounting system can automate the recording and tracking of transactions.
Desire for Detailed Analysis: Some investors want in-depth analytics on performance, risk metrics, or asset allocation. A specialized system offers these insights more effectively.
Tax Implications: Assets like passively managed ETFs or index funds might have tax implications. A portfolio accounting system simplifies tax reporting.
Multiple Accounts & Institutions: Investments across multiple brokers or banks benefit from consolidation. Some systems aggregate data for this purpose.
Budget Constraints: Advanced systems can be costly, so weigh benefits against costs.
Tech Comfort: Comfort with technology is a factor. If it’s not your strong suit, simpler methods might be better.
Time Commitment: Systems automate processes, but setup takes time. Consider if this initial time investment is worth the long-term benefits.
For some individual investors, tools like spreadsheets or basic portfolio tracking apps might be all you need. However, as your investments grow, or if you spend significant time managing and analyzing your portfolio, a more specialized portfolio accounting system becomes more beneficial. However, the built-in tools offered by many brokerage platforms might be all that you need for a buy-and-hold investment portfolio.
Which Brokers Offer the Best Portfolio Accounting Tools?
Several major brokers are known for offering robust portfolio accounting and management tools. The best broker often depends on your needs and investing strategy. Here are some brokers known for their tools:
Fidelity: Recognized for its comprehensive research tools and insights into performance and asset allocation.
Charles Schwab: Offers a mix of portfolio analysis and research tools, including their Portfolio Checkup feature.
TD Ameritrade (now merged with Charles Schwab): Their Thinkorswim platform is known for advanced charting and analysis, suitable for active traders.
Interactive Brokers: Provides robust portfolio analysis tools, suitable for complex portfolios, including international investments.
E*TRADE: Offers a comprehensive view of investments and some portfolio analysis tools.
Vanguard: Known for low-cost index funds, but also offers some portfolio analysis tools.
Merrill Edge: Offers a mix of research, analysis, and portfolio management tools.
Before deciding which broker to go with, consider the following:
Features Change: Brokers constantly update their platforms.
Costs Matter: Some brokers might charge for premium tools.
Personal Preference: Usability and comfort with the platform matter.
Specific Needs: Active traders might prioritize different tools than long-term investors.
Before committing to a broker, try out their platform and read reviews to ensure their tools align with your needs.
Portfolio Accounting Apps and Tools
Having many accounts across different brokerages can make it tough to see everything in one place. Moving stocks and funds between them can be costly and tricky. So, it’s good to keep things simple when you can.
This is where a standalone app or toolset becomes useful – they will help you look at all your accounts together. They show if you have too much or too little in certain areas and check if your investments match your plans.
Morningstar Instant X-Ray: This tool is part of the Morningstar Investor service suite and will cost you $249 per year. It provides you with plenty of analysis tools, including stock and mutual fund screeners. It can analyze your holdings across multiple accounts to give you a better idea of how you are set up. It can tell you if you’re overexposed in some areas or underexposed in others, and most importantly, it can let you know if your asset allocation is what you intended it to be.
The following apps are free to use and offer a comprehensive view of your investment portfolio. Additionally, they all provide a retirement planner, investment checkup tool, and fee analyzer.
Empower: Empower stands out as a robo-advisor, focusing exclusively on retirement accounts. It provides you with automated portfolio management for IRAs, 401(k)s, and other retirement funds. Its selling point is to try to minimize your fees through primarily investing in no-load, low-cost funds suited for long-term retirement savings
SigFig: SigFig takes a more educational approach to automated investing. In addition to portfolio management, it has a great library of financial literacy lessons and quizzes to help you learn about markets, ETFs, mutual funds, and diversification. SigFig’s goal is to not just grow your wealth, but also increase your understanding of investing principles.
Mint: Mint is an all-in-one personal finance tool best known for its budgeting and expense-tracking functionality. The app syncs with your bank accounts and credit cards to aggregate and summarise your spending across all your accounts. It analyzes your transactions and categorizes them and then provides charts showing you where your money is going each month. This makes it very easy for you to see where you can save or but back on spending.
Wealthfront: Wealthfront stands out through its combination of low fees and its emphasis on tax-loss harvesting. It uses cutting-edge algorithms and automation to reinvest your portfolio losses and get you even more returns over the long run. If you’re like most investors you probably overlook taxes until the last moment. But Wealthfront’s features help maximize your after-tax returns through tax loss harvesting.
Frequently Asked Questions
What is portfolio accounting?
Portfolio accounting is the process of tracking, reporting, and managing your financial transactions and positions within your investment portfolio. It provides you with detailed information about your investments, such as stocks, bonds, and other assets. It’s essential for helping both professional investors and individuals understand their financial investments.
What is the difference between fund accounting and portfolio accounting?
Fund accounting is a system used primarily by nonprofit organizations and government entities to track how their money is spent, rather than how much profit is made. It focuses on accountability and ensures that their funds are used for their intended purposes. Portfolio accounting, on the other hand, is centered on investments. Portfolio accounting tracks, reports, and manages transactions and positions within an investment portfolio.
How much does portfolio accounting software cost?
The cost of portfolio accounting software varies widely based on its features, the number of users accessing the system, and other factors. Some basic tools from brokers are available for free, while more advanced systems designed for professionals can cost thousands of dollars per year.
How does portfolio accounting work?
Portfolio accounting involves recording all transactions related to your investment portfolios, tracking the current positions and values of assets, measuring your portfolio performance over time, and generating reports for investors or portfolio managers. This process ensures that you have an accurate and up-to-date view of your investments, helping you make the best informed decisions.
What is a portfolio accounting system?
A portfolio accounting system is specialized software or a platform that automates the tasks related to portfolio accounting. It helps in recording transactions, tracking asset values, measuring performance, and generating various reports. These types of systems can handle large volumes of data and often integrate with trading platforms, market data providers, and other financial systems.
Who carries portfolio accounting software?
Many brokers and platforms offer portfolio accounting software. Some well-known providers in the financial industry include Fidelity, Charles Schwab, and TD Ameritrade, among others. Depending on your specific needs, you can choose from a range of options, from basic tools to advanced systems.
Marcus Anderson is a seasoned investment specialist and a key contributor to MoneyMaver. With a passion for making investing accessible to everyone, Marcus has dedicated his career to simplifying the world of finance and helping people make informed investment decisions.
Marcus holds a degree in Finance from the University of Pennsylvania's Wharton School and has over a decade of experience in the financial sector. He started his career as an investment analyst for a major Wall Street firm, where he honed his skills in financial analysis and investment strategy.
