It’s Important to Periodically Review Your Investments

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Twice each year, we should revisit our portfolio to assess whether we need to make some changes; professional investors do so quarterly. A portfolio needs to be reviewed to make certain it is achieving our desired results within acceptable risk and other constraints, such as anticipated cash flow and tax requirements.

We all look at the bottom line on our brokerage statements to measure our financial progress: how am I doing compared to last month or this time last year?

A study conducted by the research firm Dalbar concluded that individual investors generally underperform the market simply because they enter or exit their investments at the wrong time. Timing is challenging all right, but signals and red flags show up to help us navigate our investments. According to the Investment Company Institute’s analyses, individuals often pull money out of their stock investments at the bottom of the market, preventing them from participating in the subsequent recovery, and they buy at the peak—just in time to lose money.

Six Portfolio Review Steps

• Review time. Determine how much time you will put into the review. What tools and resources will you need to make your review meaningful? What are your expectations and objectives for this review?
• Returns assessment. How do the returns look relative to the risk taken? For example, if your portfolio consists solely in stocks, measure your returns against the S&P 500 Index, and they also should be measured relative to your personal investment goals.
• Benchmark. Measure your results (that is, your returns) relative to the risk you have assumed to achieve those returns. As you get older, you will want to lessen the likelihood of losses to preserve your capital. Watch out for this trap: In good markets, people tend to accept more risk than they do in bad markets. How do you measure risk? One method is to measure standard deviation. You can use a spreadsheet or purchase a portfolio management program to do so. A high standard deviation means higher risk. Without measuring risk, you can’t put returns into context. Inexperienced investors look at return without understanding the risk.
• Goals. What are your goals? What do you want your investments to do for you? For example, “I want to have enough money to live on for the remainder of my life after retirement.” Or, “I want to save and invest enough money to be able to retire.”
• Granularity. Examine each holding to see how it contributed to the overall result of the portfolio. This is called “attribution analysis.” Attribution can be asset class (growth, income, cash), sector (using the 10 Standard & Poor’s sectors), or by industry. This analysis helps you make the buy and sell decisions relative to performance against goals. Be sure to have “subgoals” for your investments. That is, investments that provide the potential for producing income, or for capital appreciation, or for stability. You should have a thesis or a logical basis for each investment, including an entry and exit strategy.
• Review strategy. Strategy is tied to expected results. What do you expect from the financial markets? During the tumultuous market of 2007–08, for example, one strategy was to simply step aside and get out of the way, to protect your assets as much as possible. The market was in a state of uncertainty, so therefore you run for cover. As markets began to stabilize, laddering slowly and methodically back into the market was rational even as many were still frozen with fear.

The Most Important Adjustments to Consider for Your Portfolio Today

• Sizing your cash position considering the current higher interest rates.
• Investing in equities and core blue-chip bonds.
• Incorporating alternatives for diversification, risk, and potential returns.
• Ensuring your portfolio is both cost-sensitive and tax-efficient.

Source: Yahoo Finance; accessed Aug. 16, 2024

Source: Yahoo Finance; accessed Aug. 16, 2024

Source: Yahoo Finance; accessed Aug. 16, 2024

Adjusting your portfolio is critical to ensuring that it aligns with your financial goals and risk tolerance, especially in today’s dynamic market.

Here Are Some Key Adjustments to Consider

• Rebalance your portfolio. Over time, the value of your investments can shift, causing your portfolio to become unbalanced. Regularly rebalancing ensures that your asset allocation remains in line with your risk tolerance and your investment goals.
• Diversify your investments. Diversification is for managing risk. Spread your investments across different asset classes, such as bonds, stocks, and real estate, to reduce the impact of any single investment’s poor performance.
• Seek inflation protection. With inflation concerns, adding assets that can provide a hedge against inflation, such as commodities, real estate, or inflation-protected securities, can be beneficial.
• Review your goals and time horizon. As your financial goals and time frame changes, so should your portfolio. If you’re nearing retirement, for example, you might want to shift into more conservative investments.

Conclusion

Stay informed! Keep up with market trends and economic indicators. This helps you make informed decisions about when to buy, when to hold, and when to sell investments. You don’t have to wait for your scheduled portfolio review to act.

Remember the words of Kenny Rogers when he sang “The Gambler”:

“You’ve got to know when to hold ‘em / Know when to fold ’em / Know when to walk away / Know when to run.”

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.