Tuesday, February 05, 2008

Online Investment Portfolio Optimizer Tool

If anyone knows where to find an online tool to optimize your investment portfolio, please send the link my way. I'm tired of guessing: "Hmm, I think I'll take 62% of Diversified Value Fund #3, 30% of International, and 8% of Bond Fund #A ... no Bond Fund B, yes! Now I'm diversified!"

For a company like Yahoo / Google Finance, Reuters, MarketWatch, etc, it would be super easy to develop one. Just enter the security ticker symbols (or if no ticket symbol exists, just enter a few assumptions about your asset), and voila - it tells you exactly what percentage of each asset to invest in to optimize your portfolio (the easiest way is to just maximize the sharpe ratio based on historical returns).

These companies already have the historical price information, from which you can calculate variance (risk), and return (reward). All they have to do is create an asset optimization function. This may sound like bizarre jargon, but I'm not a financial wiz and even I created an asset optimization function for up to 6 assets (my story in a previous post). Just have someone brighter than I make a function that incorporates more than 6.

Final thought: if this doesn't exist for free, then whichever company develops the investment optimizer tool first (it's super easy) will be rewarded by good press and TONS of money from users and advertisers. These do exist, but they either cost money and don't use historical information, or they do and they're closely guarded by Wall Street money managers (even though it isn't hard replicate!)

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