Investment Portfolio Analysis with AI

What’s Actually in Your Portfolio?

🔄 Quick Recall: In the previous lesson, you found extra savings capacity and optimized your contribution strategy across account types. Now it’s time to look at what’s happening inside your accounts — because where you invest matters as much as how much you invest.

Most people set up their 401(k) allocation once and forget it. They pick whatever sounds reasonable (a target-date fund, the “growth” option, or whatever their coworker suggested) and don’t look at it again for years. Meanwhile, fees quietly eat their returns and their risk profile drifts away from what’s appropriate for their timeline.

AI helps you audit your portfolio in minutes — no finance degree required.

The Portfolio Analysis Prompt

Analyze my retirement portfolio allocation.

Account 1 (401k — $[X] balance):
Fund 1: [fund name or ticker] — [X]% allocation — [expense ratio]%
Fund 2: [fund name or ticker] — [X]% allocation — [expense ratio]%
Fund 3: [fund name or ticker] — [X]% allocation — [expense ratio]%
[list all funds]

Account 2 (IRA — $[X] balance):
[list funds]

My profile:
- Age: [X], retirement target: age [X]
- Risk tolerance: [conservative/moderate/aggressive]
- Other assets: [home equity, pension, other — general terms only]

Analyze:
1. Overall allocation breakdown (stocks vs bonds vs other)
2. Fee analysis — total weighted expense ratio and annual dollar cost
3. Overlap between funds (do any hold the same top stocks?)
4. Age-appropriateness of risk level
5. Recommendations for simplification and fee reduction
6. Any concerning concentrations (too much in one sector/company)

Understanding Expense Ratios

The expense ratio is the annual fee charged by a fund. Here’s how to think about it:

Expense Ratio	Category	Annual Cost on $100K
0.03-0.10%	Ultra-low (index funds)	$30-$100
0.10-0.50%	Low (passive/low-cost active)	$100-$500
0.50-1.00%	Moderate (typical active funds)	$500-$1,000
1.00%+	High (expensive active funds)	$1,000+

The AI fee analysis prompt:

Calculate the long-term cost difference for my portfolio.

Current weighted expense ratio: [X]%
If I switched to comparable index funds at: 0.05% average

Portfolio: $[X] current balance
Additional contributions: $[X]/month
Time horizon: [X] years
Assumed gross return: 7%

Show me: the dollar difference in portfolio value at retirement
between my current fees and low-cost alternatives.

✅ Quick Check: Why are expense ratios more important than fund performance when choosing investments? Because past performance doesn’t predict future performance — but fees are guaranteed. A fund that returned 12% last year might return 4% next year. But a fund that charges 1.2% will charge 1.2% every year regardless of performance. Research consistently shows that the best predictor of a fund’s future relative performance is its expense ratio: lower-cost funds outperform higher-cost funds the majority of the time, because they don’t have to overcome the fee drag.

Asset Allocation by Life Stage

Your stock/bond mix should reflect your timeline:

Recommend an asset allocation for my situation:

- Age: [X]
- Retirement age: [X] (so [X] years away)
- Risk tolerance: I [can/cannot] handle a 30% temporary drop
  without panic-selling
- Social Security and pension will cover [X]% of my retirement spending
- I [do/do not] need to access these funds before retirement

Suggest:
1. Target allocation (stocks/bonds/other percentages)
2. A glide path: how should this allocation change
   over the next [X] years as I approach retirement?
3. The rationale — why this allocation for my situation
4. Historical worst-case: what would this allocation have
   done in 2008-2009?

The Glide Path Concept

Your allocation shouldn’t be static. A general framework:

Years to Retirement	Stock Allocation	Bond Allocation
30+ years	80-90%	10-20%
20 years	70-80%	20-30%
10 years	60-70%	30-40%
5 years	50-60%	40-50%
In retirement	40-60%	40-60%

These are guidelines, not rules. Your personal glide path depends on your pension coverage, Social Security income, risk tolerance, and spending flexibility.

Portfolio Simplification

My portfolio has [X] funds across [X] accounts.
I want to simplify to 3-5 funds with true diversification.

Available funds in my 401(k): [list all available funds with expense ratios]
Available in my IRA: [anything — it's self-directed]

Suggest a simplified portfolio using:
1. US total stock market index (broad US stocks)
2. International stock index (developed + emerging markets)
3. US bond index (investment-grade bonds)
4. Optional: REIT index or small-cap value (if available)

Include: Target percentages and rebalancing frequency.

✅ Quick Check: Why does simplification often improve a portfolio? Because complexity usually means overlap without diversification, higher blended fees, and harder rebalancing. A portfolio with 3-4 index funds covering US stocks, international stocks, and bonds provides exposure to thousands of companies at rock-bottom fees. Adding more funds rarely adds diversification — it adds management complexity and often raises costs without improving returns.

Key Takeaways

Expense ratios are the most reliable predictor of fund performance — every 1% in fees costs roughly $200,000+ over 30 years on a $200K portfolio
Check for fund overlap: holding multiple funds that own the same top stocks is pseudo-diversification, not real diversification
Your stock/bond allocation should follow a glide path that reduces risk as you approach retirement
Portfolio simplification to 3-4 index funds often improves both diversification and cost efficiency
The right risk level is the one you can hold through a 30-40% market crash without panic-selling — not the one that maximizes theoretical returns

Up Next: You’ll build a tax-efficient withdrawal plan — learning when and how to draw from different account types to minimize the taxes that erode your retirement income.