As a personal portfolio grows

The Top Portfolio Management Software By Z. Joe Lan As a personal portfolio grows through the years, it often encompasses several investment accounts, including 401(k)s, IRAs, brokerage accounts and savings accounts. Tracking all these accounts accurately is an arduous task, and many investors require help. Portfolio management software programs, which have become increasingly powerful over the years, continue to improve and are well equipped to help individual investors monitor their personal portfolios. In this issue s Comparison, we examine three portfolio management software programs: Investment Account Manager Version 2, Fund Manager 12 and Quicken Premier 2013. These three software programs have made appearances in our previous Comparison articles. In addition to updating their features and functions, I take it one step further here and provide hands-on examples of how to create a portfolio using these software packages and show a few of the noteworthy reports. Why Software? The development and expansion of high-speed Internet means that sophisticated tools can be run from your Web browser. Over the years, Web-based portfolio trackers have become very popular, and they now significantly outnumber portfolio tracking software. Web-based portfolio trackers offer real-time price updates (usually for a fee) and inform you of up-to-the-minute news articles on holdings in your portfolio. The best online portfolio managers can sync directly with your investment accounts, meaning you do not need to enter updates manually. But while Web-based portfolio trackers are capable tools, softwarebased portfolio managers still represent a significant upgrade in many areas. The main difference I have no- Software-based portfolio managers still represent a signifi cant upgrade in many areas. ticed with software is the abundance of powerful reports that are not available for Web-based programs. In addition, software programs are able to better calculate gains and losses and performance for individual portfolios as well as total performance for multiple portfolios. It is also worth noting that there are no Mac-based software packages worth mentioning. Quicken, which is reviewed in this comparison, does offer a Mac-based Quicken Essentials that can track your portfolio and individual stock values, but the program does not offer the investment reports that Quicken Premier provides. The best bet for Mac users is the premium online portfolio tracker offered by Morningstar.com. If any Mac users among our members know of high-quality and capable portfolio software packages that they would like to share, we would be more than happy to perform a hands-on review. For a detailed comparison of online portfolio trackers, see the Fourth Quarter 2012 Computerized Investing Comparison. Features and Functionality Most capable portfolio management programs offer similar features. But since software is generally not free, matching your personal needs to a software program is a more important issue than it is when choosing between the free online portfolio trackers. The portfolio software packages that we review in this compari- son cost $100 or more, so be sure to select the most appropriate one for your needs. Our comparison grid on pages 24 and 25 details the features offered by our three picks. Costs and Time Commitments Investing in portfolio management software will inevitably come with certain costs. In addition to monetary costs, you need to consider the time you will spend learning to use the program. What it takes to configure the program, how easy it is to use and how well it can handle your personal needs will eventually become larger factors than the monetary cost of the program. If you are learning a new program, you should expect to spend a few days or even weeks getting to know how it works before being able to use it well. In our comparison, we made an effort to thoroughly use the programs in order to take an accurate gauge of each program s strengths and weaknesses. Luckily, two of the three programs offer fully functioning demos, allowing all potential users to try the program for themselves before purchasing (Quicken Premier does not offer a demo or trial version). Securities/Assets Handled The importance of a program s ability to handle a variety of different securities cannot be overstated. When you are looking at a program, especially if you have a long investment future, consider not only if it can handle the investments you currently own, but also if it will be able to track investments that you may likely own in the future. Programs are available that specialize in certain areas, such as options. However, for the purposes of this comparison, our focus is on programs that support the securities that most individual investors own, the 22 Computerized Investing

most important being stocks, bonds and funds. A program s ability to distinguish between the asset types is particularly important, as it ensures that asset allocation and industry reports will be generated correctly. An investor s ability to quickly and accurately assess asset allocation is critical. Transactions Handled The transactions supported by a portfolio management program are closely related to the types of securities that the software handles. All of the programs compared here handle standard transactions such as buying and selling securities and receiving cash dividends. Each of these programs handle enough types of transactions to cover most individual investors needs. All of these programs allow you to specify security lot assignments for a transaction. This feature is useful for tax liability issues and tracking performance. A lot is the total number of units involved in a given trade. If you reinvest dividends from your mutual funds and stocks, you will find yourself tracking numerous lots over a long period of time. Any solid portfolio management package will automatically match buy and sell lots for different accounting strategies for the purpose of reducing tax exposure. The strategies include: first-in-first-out (FIFO), average cost and specific lot. Having a program that can handle all three is convenient. Additionally, these portfolio management software programs can automatically download your transactions from a brokerage account. This saves a lot of time, sparing you from entering in each position and transaction. However, you may still have to enter costs basis for each position. Transaction Reports Reports allow you to analyze your portfolio and investments. The level of detail in reports is one of the biggest differences between paid portfolio management programs and their cheaper (often free) online counterparts. The three tools covered here vary in the types and flexibility of reporting. When choosing a program, be sure to check whether the program can generate the types of reports you want and other reports you may not currently use in your analysis. These extra reports might enhance the overall evaluation of your portfolio. While you want to be sure that a program provides enough flexibility and functionality to complete your analysis, again, you should consider possible future needs with regard to securities and transactions handled along with reporting capabilities. A program should provide reports for securities, industries, and asset classes that include performance and asset allocation analysis. The comparison grid lists the main report types offered by the portfolio management programs. The current holdings report lays out the composition of your portfolio. At a minimum, programs will list the securities that you hold, along with units, costs and current market value. Most software programs will also provide some asset allocation and gain/loss data right on the main page. The holdings by lot report breaks down portfolio composition into finer increments, indicating each purchase at a specific date and price. This gives a detailed history of your transactions and provides guidance for selling. Tax schedules are reports that pertain to Schedule B and Schedule D IRS forms. Designed for computing interest and dividends received from a portfolio, Schedule B reports allow you to estimate tax debt (or credit) before year-end statements arrive. Tax Schedule D reports compute long- and short-term capital gains and match assets that will yield capital gains with tax liabilities. Ideally, the program should also track foreign tax withheld on your securities to help ensure that proper credit is accounted for when filling out your taxes. Tax reports are provided for a given tax year, so programs generally include a dialog box to select the year to report upon. However, none of the portfolio management programs specializes in tax reporting, so their capabilities may be limited. Online brokerages now also provide detailed tax reports. But tax reports can be tricky; if your situation is complex, it may be prudent to consult with a tax professional. The projected cash flow report serves as a forecast of the expected portfolio cash income from dividends, interest, and bond maturities. This report is especially useful for investors such as those in retirement who rely heavily on incomerelated investments. Bond maturity schedules are highly useful in assisting investors to quickly redeploy capital that is coming due. They can also be used to help protect against interest rate risk, an important function given the current environment. Customizing of reports can be content-related, such as allowing you to choose the time period, or cosmetics-related, such as allowing you to select column and row headings or even font size. Portfolio alerts let you know when a security has crossed some predetermined price threshold. Such an alert may highlight the need for investigation that might otherwise go unnoticed. Performance Reports A basic part of the portfolio management process is to determine and analyze performance. Free online portfolio trackers generally cannot Fourth Quarter 2013 23

COMPARISON: THE TOP PORTFOLIO MANAGEMENT PROGRAMS Program Name Company Telephone Website Price Demo Available (Cost) Platform (Mac, Windows) Maximum Portfolios/Securities per Portfolio Maximum Securities/Transactions per Security Quicken Premier 2013 Intuit, Inc. www.quicken.com $99.99 Windows 1,000+/1,500+ 1,500+/unlimited Investment Account Manager Version 2 Quant IX Software, Inc. 800/247-6354 www.investmentaccountmanager.com $139/$119 for AAII members (30 days free) Windows unlimited/unlimited unlimited/unlimited Securities/ Cash/Stocks/Mutual Funds/ETFs Assets Bonds (Fixed/Variable/Zero/PIK) (fixed/variable/zero) Handled Annuities Options/Futures/Warrants Real Estate/Partnerships User-Defined (options) Security Identification (Name/Ticker/CUSIP) (name/ticker) Classification Account Number/Management Firm Asset Class (Predefined/User-Defined) Industry (SIC Codes/User-Defined) (predefined) (predefined) Transactions Deposit/Withdrawal; Buy/Sell Handled Short/Cover Margin Receive/Deliver Security Return of Capital Dividends (Cash/Stock/Splits/Reinvest) Interest Income Bond (Discount/Premium/Amortization) Treatment of Fees/Commissions (discount/premium) Security Lot Assignments (Avg. Cost/FIFO/Specific Lot) Automatic Security Lot Assignment (FIFO/specific lot) (FIFO/specific lot) Reports Current Holdings Holdings by Lots Tax Schedules (Interest/Dividend/Capital Gains) Projected Cash Flow Customized Reports Portfolio Alerts Performance Security/Industry/Asset Reports Portfolio (Single/Multiple) Holding-Period/Between-Period Returns Value-Weighted IRR/Time-Weighted Returns Tax-Adjusted Returns Benchmark Comparison Follows GIPS Standards (value-weighted) Data Support Data Services Supported Quicken BetterInvesting, StockCentral,Yahoo!, Stock Investor Pro, Manifest Investing Imports Brokerage Transactions Import Formats Supported* Export Formats Supported* OFX, QFX, TurboTax QIF Captools, QIF, QFX, OFX XLS, PDF, TXT, CSV, DOC *Format Key: ASCII = universal plain text; CSV = comma-separated values; DOC = Word documents; OFX, QFX = Open Financial Exchange; PDF = Adobe Reader format; QIF, PRN = Quicken; TXT = text fi le set custom time ranges or generate performance for sub-portfolios, while performance reports in software programs alleviate both of these concerns. The comparison grid summarizes each program s performance report capabilities. The level of performance reports available is discussed more fully in the summaries of the programs that follow. A program should provide reports for securities, industries and asset classes that include performance and asset allocation analysis. Some programs allow for an examination 24 Computerized Investing

Fund Manager 12 Beiley Software, Inc. 480/705-0129 www.fundmanagersoftware.com $89, personal; $295, professional (free) Windows personal, unlimited/500; pro, unlimited/2,000 unlimited/unlimited (options, futures) (user-defined) (security, asset) (time-weighted) (professional version) Internet OFX, QFX, QIF, PRN, CSV, TXT ASCII, CSV, QIF among various asset classes, while others provide industry, sector and individual security breakdowns. Reports covering single and multiple portfolios are important to address the diversified aspects of all your accounts. All three programs also offer between-period returns on reports, which allow you to monitor security performance during a known market environment: The programs store snapshots of your portfolios at various times and provide information on how portfolios perform during different market cycles. Some portfolio management programs offer the ability to calculate both a value-weighted (also referred to as a dollar-weighted) internal rate of return (IRR) and a time-weighted rate of return. The IRR tends to be the best gauge because it represents the rate of return earned by your investments. It considers the time when inflows and outflows are made to the portfolio, the amount of these flows and the combined impact upon the overall rate of return. The time-weighted return is most often used to analyze the performance of investment decisions made by a money manager. A time-weighted calculation ignores the impact of any cash added to or removed from the portfolio. However, inflows and outflows should be considered by individual investors, not only because an individual does have control over them, but also because they are very common with retirement accounts and will have a large impact on the portfolio s rate of return. Tax-adjusted return reports generate pretax and aftertax returns, calculating the tax liabilities of your transactions and reporting the impact on the rate of return. Data Support Portfolio software programs are able to download prices and portfolio values from the Internet. Furthermore, they are usually able to directly download transactions and holdings from brokerage accounts; however, users must provide their brokerage login information and account number. Certain programs also allow for data importing without directly syncing with a brokerage account. This method does not require that users provide brokerage login and account information. Top Portfolio Management Programs Quicken Premier 2013 Quicken Premier is one of the most well-known financial software programs available. The current version is Quicken Premier 2013, which can be bought for $99 from Intuit. Keep in mind that Quicken Premier is designed as a comprehensive money management tool. Therefore, the program is proficient in handling investment accounts as well as all sorts of banking accounts, including checking and savings. Quicken expanded the number of banks and brokerages to which it can automatically sync. According to its website, over 12,000 banks and brokerages can be synced to the accounts list in the program. Quicken now also automatically categorizes most of the items after syncing with an online account. Furthermore, portfolio values are updated every 15 minutes. Creating your accounts is very simple. The setup wizard will walk you through the process, first asking for a primary checking account and then allowing you to add additional accounts. The easiest way to create an investment portfolio is to add an account and allow Quicken to sync directly with your brokerage account. If you do not wish to provide the necessary account information, you may also use the advanced setup function to enter your transactions manually. If you do choose to allow Quicken to automatically sync your accounts, all of your transactions will be loaded into each account in your accounts list. As you can see in the Quicken Accounts & Securities List figure shown here, the program lists the holdings in each account on the left-hand side of the page. You can view separate pages for spending, bills, planning and investing (which is pictured) by clicking on the main heading tabs. Fourth Quarter 2013 25

Quicken Accounts & Securities List Quicken Asset Allocation The assets the program can handle include cash, stocks, bonds, mutual funds and exchange-traded funds (ETFs). Unfortunately, there is no support for real estate investments, annuities or user-defined securities. When AAII s Model Shadow Stock Portfolio was loaded into the program, the asset classes were not identified. However, users can quickly fix any missing or incorrect information by clicking on the name of the security and selecting edit security details. Quick Premier offers the most comprehensive listing of reports among the three portfolio management software programs compared here. Nine separate reports are provided for investments, including capital gains; investing activity; investment asset allocation, income, performance and transactions; maturity date for fixed income; portfolio value and portfolio cost basis. A reports menu is available at the top right of the program, which lists all the reports available. While these reports are generally self-explanatory, there are a few worth highlighting. The investing activity report displays your interest, dividends, capital gains (short- and long-term) and realized gains. Additionally, the report also displays your beginning and ending values, along with deposits and withdrawals. You can toggle among a bevy of time-period ranges, including daily, monthly, quarterly and yearly, or you can enter your own custom range. Quicken Premier s report showing the maturity date of fixed income investments is worth noting. Usually, this type of information is provided by a broker only for customers who have a full-service account. This type of report can help investors build a bond ladder. A bond ladder refers to buying bonds with interest payments and maturity dates spaced across several months or years. Using bond ladders helps to alleviate interest rate risk and allows investors to receive income on a regular basis. Six reports are also available in the tax section. These reports assist users in determining their capital gains; for those who use itemized deductions, the program also provides a Schedule A report. A tax schedule and a tax summary outline the tax consequences of your investment transactions. The investment performance report may be shown across customizable 26 Computerized Investing

time ranges. Investment Account Manager Version 2 Investment Account Manager (IAM) is a pure portfolio management program, making it slightly different from Quicken Premier. The program costs $139, but there is a $20 discount for members of AAII (see the Special Offers section under Member Benefits at www.aaii.com for more details on the discount). The free 30-day trial provides a fully working version of the program. Creating a portfolio is straightforward, and the program walks you through the process. Upon opening IAM for the first time, the program allows you to either download transaction data directly from a brokerage account or enter the data manually. During our tests, we downloaded investment holdings directly from Scottrade, which required entering an account number and password. The process to download transactions was simple and the data retrieved was accurate. Once again, we used AAII s Model Shadow Stock Portfolio for testing. You can edit the cost basis manually after your portfolio has been downloaded. In addition to stocks, bonds, mutual funds and exchange-traded funds, the program can also handle real estate investments, options and user-defined securities. Furthermore, you can track buys, sells, dividends, short sales, margin transactions, stock splits, reinvestments, interest, commissions, and bond premiums and discounts. After creating your portfolios (you can also populate a portfolio with unlimited holdings), they will be listed on the left-hand side of the page. Clicking on a single portfolio will load all of the investments for that portfolio. The current value, unrealized gain and loss, estimated income and last update date is presented at the top left of the program and the year-to-date activity for the portfolio is provided underneath. You can choose from seven tabs Investment Account Manager Fundamentals Tab Investment Account Manager Portfolio Allocation Report to view data on the portfolio selected. The Portfolio Values tab shows your holdings along with the quantity owned, unit and total cost, market value and gains and losses. The Income Received tab provides a breakdown of your income-generating investments along with their tax consequences. A listing of the securities sold during the current year is also provided. The Holdings Summary and Allocation Summary tabs provide useful information on your portfolio as a whole, presenting a breakdown of the portfolio s asset allocation and transaction history. In addition, holdings are all shown as a percent of your total portfolio. Finally, two additional tabs have recently been added Transactions and Fundamentals. The first simply lists the portfolio transactions through adjustable time frames. The second presents commonly used ratios, such as yield, price-earnings ratio and price-earnings-to-growth ratio and is shown here in the figure labeled Investment Account Manager Fundamentals Tab. To update portfolio values, you must click on the Update Prices button at the top of the program as the program does not automatically update the values. Numerous reports are provided by Investment Account Manager and each of the reports is run by selecting the report from the Reports and Graphs pull-down menu. One of the most useful reports offered is the Portfolio Allocation Report. After selecting this report, users are able to set portfolio allocation targets through the pop-up window. The report is shown with set target portfolio allocations in the figure shown here labeled Investment Account Manager Portfolio Allocation Report. Fourth Quarter 2013 27

Fund Manager Graph of Portfolio Value Fund Manager Distribution Summary Investment Account Manager provides an upside/downside report that can also be charted. The upsidedownside ratio is one of Better- Investing s classic measures of risk. It measures the ratio of a stock s upside if things go right, compared to its downside if things go wrong. In essence, it provides an assessment of the risk-to-reward trade-off for investments in your portfolio. As with Quicken Premier, a bond maturity schedule is provided. For each report, you can specify the portfolio(s) and date range. For the performance reports, users are able to calculate value-weighted or time-weighted returns and view performance by asset class, sector and industry. The reports can also be saved as a PDF file. The help section of Investment Account Manager is very useful, covering most areas of the program. To open the Help Menu, simply select Contents from the Help pull-down menu. Fund Manager 12 Three versions of Fund Manager are offered personal, professional and advisor. The personal version of the program targets individual investors and provides all the features that assist users in managing a personal portfolio, such as retrieving values using the Internet, producing a bevy of graphs and reports, and listing bond and income schedules. The professional version, targeted for traders, includes technical analysis tools, risk/ reward scatter plots and real-time quotes. The advisor version is for institutional investors, such as financial advisers and broker/dealers, and includes a variety of client management features. There are also significant price differences associated with each version. The personal version costs $89 while the professional version is $295 and the advisor version is $1,395. The professional version was tested for the purpose of this review, and it is the version covered in the remainder of this section. Fund Manager, like Investment Ac- 28 Computerized Investing

Table 1. Ratings for the Top Portfolio Management Software Criteria are rated on a scale of one to five, with five denoting the best score. Performance rates how well the program accomplished the typical functions required of a complete portfolio management program; Documentation rates the quality of the printed materials, on-line help/tutorials, and manufacturer support; and Ease of Use rates how simple the program is to install, learn and operate. Price Pros Cons Fund Manager 12 4 5 3 $89 personal +custom asset class broker downloads may Beiley Software Inc. /$295 professional +great reporting tools not be accurate www.fundmanagersoftware.com no tax-adjusted returns no complete transactions list Investment Account Manager Version 2 5 5 5 $139 +unlimited portfolios predefined asset classes Quant IX Software /$119 AAII members securities & transactions no tax-adjusted returns www.investmentaccountmanager.com +easy to use +in-depth reporting tools Quicken Premier 2013 4 5 5 $99.99 +extra budget & net no free demo Intuit, Inc. worth tools & reports www.quicken.com +tax-adj returns & reports Performance Documentation Ease of Use count Manager, is a pure investment management software program, with no personal finance capabilities. This program is not as intuitive to use as Investment Account Manager or Quicken Premier, but it offers some great reports and performance tools. When you first install the program and open it, the setup wizard automatically starts. There are a few ways to create a portfolio, but the quickest and easiest way is to directly load the portfolio through a brokerage account. Once again, if you are uncomfortable with this, you may also export your transactions from your brokerage account to a compatible file and then import the transactions into the program. This method does not require users to provide login information and is more convenient than manually inputting all the data (though you can enter data manually if you choose). Users should double-check the assigned asset type after uploading positions. This will help when generating reports down the line. In addition to the asset type choices provided by the program, users can also specify their own. After importing or manually creating your portfolio, you can choose Z. Joe Lan is assistant financial analyst at AAII. from a wide variety of graphs to display in the program. Highlight the portfolio you wish to display on the left-hand side of the program before selecting the graph. For professional users, risk/reward scatter plots can be graphed for each investment, asset type, investment goal, symbol or portfolio. These scatter plots graph the time-weighted return against the standard deviation of monthly returns, enabling users to quickly identify items that are underperforming based on the volatility of the investment. To pull up the available graphs, select Graphs from the top toolbar. Shown here is a figure labeled Fund Manger Graph of Portfolio Value. Fund Manager offers several reports that are useful for individual investors. Time-weighted returns can be calculated for specified time ranges as well as for individual securities and asset allocations. The distribution summary displays distributions paid for a time period, and includes dividends, short and long-term capital gains and foreign tax distributions (shown in the figure labeled Fund Manager Distribution Summary). The asset allocation report provides not only the asset allocation breakdown of your portfolio, but also the beginning value and percentage, invested amount, distribution, ending value and percentage and the gain for the selected period. The program also provides a rebalance report that outlines the differences between your asset allocation and a target asset allocation. Make sure that each holding and cash are labeled correctly before using the asset allocation reports. Bond maturity schedules are also provided. Conclusion Overall, each of these three programs reviewed provides users with good choices to track their investments. Two of the programs offer trial accounts, and we suggest making use of them. Hands-on experience is the only way to get a feel for a program s ease-of-use and an idea of the types of reports that can be generated. While Fund Manager and Investment Account Manager are true portfolio management software programs, Quicken Premier provides additional personal finance capabilities. This added dimension to Quicken Premier makes it worth considering. Unfortunately, Quicken Premier is the only program out of the three reviewed that does not offer a trial account. Fourth Quarter 2013 29