How to Organize Your Personal Investments

Personal investments can be classified by size and type, among other factors.
i Thinkstock/Comstock/Getty Images

Organizing personal investments into categories means understanding how the investments work, as well as the general classifications they fall into. A carefully built portfolio should have a variety of investment types in a number of categories, with proportions that fit an investor's risk tolerance and stage in life. By diversifying your investments, you ensure an appropriate level of growth so you will not run out of money, and an appropriate level of protection so that if one type of investment struggles, you do not lose your nest egg. To ensure proper diversification, you need to organize and classify your investments.That means determining the categories for each one so you can achieve and maintain a proper balance.

Investment Categories

Step 1

Determine if your investments are stocks in individual companies; mutual funds that invest in a basket of stocks; bonds representing corporate or municipal debt; or certificates of deposit, as well as cash and other miscellaneous items such as real estate.

Step 2

Choose a classification method for your stocks, and classify them according to that method. For instance, Morningstar divides stocks into eight categories: distressed, hard asset, cyclical, speculative growth, aggressive growth, classic growth, slow growth and high yield. The category each stock fits should tell you something about the stock as an investment -- for instance, aggressive growth stocks are intended to gain in price at a pace ahead of the overall market, with the accompanying risk of loss. You want to have a balance of investment categories that fits your chosen strategy. If you have a long-term outlook, for instance, you will want to keep a higher proportion of growth stocks. If retirement is near, you will want to keep a lower proportion of potentially volatile shares.

Step 3

Categorize your stocks by type to further differentiate them. For instance, stocks can be ranked by market capitalization; sector, such as technology; or even geographic location, such as Latin American or European stocks. They can even be listed in categories such as blue chip for those large company stocks that pay steady dividends and rank among industry leaders. This more you refine your organization system, the better you can follow your investment plan by making sure you are not too vulnerable to a downturn in a particular sector.

Step 4

Choose a classification method for your mutual funds, and classify them according to that method. Once again, Morningstar has a popular system built around its nine-box "style box," which lists funds based on how they fit onto two classes: risk, from low to high; and size, from small to large. For instance, a fund might be a large-cap value fund, meaning its size is among the largest funds, or a large-cap, while its investment strategy is among the most conservative, or value. Once again, this organization will enable you to track your asset allocation and ensure the proper mix in your portfolio.

Step 5

Categorize your funds into type to further differentiate them, if necessary. For instance, some funds are designed for growth, while others are designed for growth and income. Both of these designations fall into the Morningstar style box. On the other hand, a bond fund or money market fund does not fit smoothly into one of the nine portions of the style box. As with your stocks, the more thorough your classification system, the better you will understand your portfolio allocation and be able to adapt it to your needs.

the nest