Reading a brokerage statement

In short

A friend of mine kept his brokerage statements in a kitchen drawer for six years without opening one. If you are holding a statement and feeling a little lost, you are in good company. Start with the account value, then find what you added and what the account earned. Next, look for the fees, because they come out of your balance whether or not you see them. Check each holding's name, share count, and price, and make sure the math holds. Then compare this month's numbers to last month's. Ten minutes is enough.

The whole of it

What it is

I once watched a neighbor squint at a statement the way a man squints at a road map in the rain. He assumed it was written for experts. It was not. A brokerage statement is a report card for your account, sent by the firm that holds your investments. It tells you what you own, what it is worth, what moved in or out, and what the firm charged.

If you are new to these, the layout can feel crowded. Take heart. Almost every statement from every firm answers the same few questions, just in a different order. How often a firm sends one is set by SEC and FINRA rules, so check the official investor pages for the exact schedule. The Securities and Exchange Commission and FINRA both publish plain guides for investors on what a statement should contain. Those two sources are worth a bookmark.

How it works

You have probably noticed that the first page looks like a summary. That is on purpose. It usually shows a beginning value, an ending value, and the change between them. The change comes from three places. Money you put in or took out is one. Gains or losses on what you own are another. Fees and other charges are the third.

Here is the part that trips people up. A rising balance does not always mean your investments did well. If you deposited $500 and the balance rose $450, the account actually lost $50. The summary page makes you do that small sum yourself. So do it.

Further in, you will find the holdings list. Each line shows the name of the investment, how many shares you own, the price per share, and the total value. Multiply shares by price and the total should match. If 40 shares sit at $25 each, the line should read $1,000. It is a quick check, and it works.

Then comes the activity section. This lists deposits, withdrawals, dividends, interest, trades, and fees in date order. Read it like a checkbook register. Every dollar that moved shows up here. Nothing hides.

Last, find the cost of cash and the cost of funds. Many funds charge an expense ratio, which is a yearly percent taken out of the fund itself. It will not show as a line item on the statement. Look it up in the fund's own documents. That surprises folks.

The numbers, and where to find yours

If you are wondering where your own figures live, they are closer than you think. Your account number and statement period sit at the top of page one. The ending value is in the summary box. Deposits and withdrawals appear in the activity section. Fees show up as separate lines, sometimes labeled advisory fee, account fee, or commission.

Some numbers are set by law rather than by your firm. The limit on how much you can add to an IRA this year is the current figure, which the official source publishes each year, and the catch up amount for those who qualify is the current figure, which the official source publishes each year. The IRS publishes both on its website. Your statement may show year to date contributions, so you can compare what you have added against that limit.

Cost basis is another number worth finding. It is what you paid for an investment, and it decides how much gain you report when you sell. Many statements list it beside each holding. If yours does not, the firm can supply it on request.

A worked example

Let me tell you about Maria Alvarez, a nurse who finally opened her statement in March. Her account held $24,000 on the first of the month. She deposited $500 during the month. On the last day, the ending value read $24,380.

Maria wanted to know whether her investments grew or shrank. She began with the change in value: $24,380 minus $24,000 is $380. Then she subtracted her own deposit: $380 minus $500 is negative $120. So the investments lost $120 that month, even though the balance went up.

Next she looked at fees. The activity section showed an advisory fee of $18 and a small account fee of $2. Together that is $20. She asked herself how much of the loss came from fees. Out of $120, $20 was fees, and the rest came from prices moving. She added it up: $120 minus $20 is $100 from price changes.

Then she checked one holding. The statement listed 60 shares of a fund at $30 each. Her sum of 60 shares at $30 a share is $1,800, and the statement showed $1,800. It matched.

Maria felt better. She had not fixed anything. She simply understood what she was looking at. That is most of the battle. She also noted one more thing in her own handwriting: the fees were $20 a month, or $240 a year at that pace. Seeing the yearly figure in plain numbers made her curious enough to read the fee schedule.

Where it goes wrong

I have made this mistake myself, so I say it kindly. The most common slip is reading the ending balance and stopping there. A bigger balance feels good. But as Maria learned, deposits can hide a loss, and withdrawals can hide a gain. Always subtract what you added.

Another trouble is skipping the fees. Small charges look harmless, and they add up quietly over many years. Read them every time.

A third trouble is mixing up the date a trade happens with the date it settles. A trade date is when the order is placed. The settlement date is when the cash and shares officially change hands. Statements may show either one, and the difference can confuse a careful reader. Look at the column headings.

Be careful, too, with statements that cover more than one account. Some firms combine a taxable account, an IRA, and others into one packet. Each has its own value and its own rules. Do not add them together and assume the total belongs to one purpose.

And watch for mail you did not expect. If you see a trade you did not place, call the firm that day. Do not wait. FINRA and the SEC both explain how to report a problem, and they offer free tools for checking a broker's record.

Questions to answer before you leave this page

Can you find the beginning and ending value on your last statement, and can you subtract what you deposited to see what the account truly earned? Do you know the dollar amount of every fee that was charged, and do you know what each one pays for? Can you pick one holding and check that the shares times the price equals the total listed? Do you know your cost basis for the investments you might sell someday, and where the statement shows it? Have you looked up the expense ratio on each fund you own, since it will not appear as a line on the page? And finally, what is one thing on your statement that you could not explain, and who at your firm could you ask this week?