Openfolio’s “Setup” Tells You How Your Investment Is Accumulating
Internet / iOS: Investing is not as difficult as it sounds , but there are a few simple mistakes that many investors make. Openfolio’s Customize tool analyzes your assets and tells you if you are making any of these mistakes.
We’ve already told you all about Openfolio . They compare your portfolio to that of other investors to see how you are doing. They recently looked at their public user portfolios and found common issues among those who weren’t doing so well:
- They have invested in individual companies, exposing themselves to higher volatility.
- Because they did not diversify into funds and ETFs, they invested less in the broader market.
- They had too much cash and therefore underinvested.
These are pretty standard mistakes, but based on their findings, they developed a tool called Tune Up. It looks at your portfolio and rates it in each of the following categories:
- Risk: You pass if your portfolio volatility is below the average of 21.4%.
- Diversity: You pass the exam if your diversity score is above the 70 average.
- Cash: You pass if your cash allocation is below the average of 9.3%.
- Trading Frequency: You pass if you trade less than 12 times a year.
Founder Hart Lambour explained the methodology used to calculate volatility or risk:
The definition of volatility we use is realized on an annualized basis over 90 days. It sounds complicated, but quite standard. Here’s what we do: we take your current portfolio, look at how much your return has changed up and down in the last 90 days (volume sold), calculate the variance of those returns, and then translate it into a year to make the number meaningful when thinking. on annual income (instead of 90 days).
In assessing diversity, they started with a standard calculation called the Herfindahl Index. But they simplified it to a range of 0 to 100. Lambour explains:
For example, if you own one share, such as Apple, your valuation will be 0. If you own a large number of shares in one asset class, such as the S&P 500, your valuation will be 68 (not 100) because your assets are equal zero. not diversified by asset class or region. If you belong to different asset classes or regions, your estimate will be close to 100.
You must link your brokerage accounts in order to use the tool, and once you have done that, simply click the Configure icon and the app will analyze your assets and give you points based on your overall portfolio.
On the security front, Openfolio uses bank-level security and a read-only connection. You can read more about their safety here . And to get acquainted with the tool itself, use the link below.