Using SigFig to Track Performance

Jan 9, 2013 by Adam C. Powell, Ph.D.

Upon upgrading my computer to Windows 8, I discovered the service SigFig, which enables people to easily keep track of their financial performance. SigFig is like Mint for your investment portfolio. It enables you to track your asset allocation, dividends, geographic allocation, and risk from a common dashboard.

What problem does SigFig solve?

I had previously managed my money within Scottrade’s online platform and used Yahoo! Finance for an aggregate summary. Unfortunately, Scottrade did not do a nice job of aggregating across brokerage accounts, and Yahoo! did not report portfolio metrics like aggregate beta, P/E ratio, and dividend yield. SigFig does both, and as a result lets me keep on top of things. Since it has both a website and a Windows 8 Metro app, it is easy to take a glance at its findings each week.

Why are these numbers useful?

Beta can be used to determine a portfolio’s volatility, relative to that of the market. Portfolios with a beta greater than 1 will change value on average with greater volatility than the market, while portfolios with a beta less than 1 will change value on average with less volatility than the market. SigFig computes the overall beta of the portfolio and identifies the betas of individual equities with the portfolio.

The price to earnings (P/E) ratio is a measure of the market performance of a stock, relative to the earnings of the underlying business. When a P/E ratio is high, the market has valued the company at a high multiple of its annual earnings (perhaps it expects those earnings to grow over time), while when a P/E ratio is low, the market has valued the company at a low multiple of its annual earnings. A low P/E is not always a good thing. If a stock’s price drops, but the company’s earnings have not declined, this will lower the P/E ratio. Meanwhile, if a stock’s earnings increase but its share price does not, the P/E will increase.

It is essential to understand dividend performance in addition to changes in share value, as the total return of a portfolio is based upon both. When companies issue dividends, they in essence give cash back to shareholders at the expense of corporate value. Thus, the return one earns from an investment is based upon both the increase in the value of the investment and any dividends that it has issued.