Regular reviews are a critical component of successful investing. They are the checkpoints that help ensure your investment portfolio remains aligned with your financial goals, risk tolerance and the changing market dynamics.
This article delves into the importance of regular portfolio reviews, how to conduct them effectively and the adjustments that might be necessary to keep your investment strategy on track.
THE IMPORTANCE OF REGULAR REVIEWS
Alignment with goals: Over time, your financial goals may evolve. Regular reviews help to ensure your investments are still geared towards achieving these goals.
Risk management: Market conditions can change rapidly, affecting the risk profile of your portfolio. Regular assessments help in managing this risk and making necessary adjustments.
Performance tracking: Reviewing your portfolio allows you to evaluate the performance of your investments against benchmarks and expectations.
CONDUCTING EFFECTIVE PORTFOLIO REVIEWS
- Set a review schedule: Determine a review frequency that aligns with your investment strategy and personal preferences. While the exact frequency can vary, a common approach is to conduct reviews annually or semi-annually.
- Assess portfolio performance: During a review, examine the performance of individual investments and the portfolio as a whole. Compare this performance to relevant benchmarks, like market indices, to understand how your investments are doing relative to the broader market.
- Evaluate asset allocation: Asset allocation should reflect your current risk tolerance and investment goals. Check if the actual allocation has drifted from your target due to market movements and decide if rebalancing is required.
- Revisit goals and risk tolerance: Life events, such as a career change, retirement or significant financial changes, can affect your goals and risk tolerance. Regular reviews are the perfect opportunity to reassess these aspects and make adjustments.
MAKING ADJUSTMENTS POST-REVIEW
Rebalancing: If your asset allocation has strayed from your target, rebalancing is necessary to realign your portfolio with your intended risk profile.
Diversification check: Ensure your portfolio is adequately diversified across different asset classes, sectors and geographies.
Performance improvement: If certain investments consistently underperform without reasonable justification, consider whether they still have a place in your portfolio.
Tax considerations: When making adjustments, be mindful of the potential tax implications. Sometimes, it might be more advantageous tax-wise to hold onto certain investments.
Adjusting to life changes: Adapt your investment strategy to reflect any significant changes in your personal life or financial situation.
Regular portfolio reviews are not just about looking at numbers; they're a comprehensive approach to keeping your investment strategy aligned with your evolving life and financial markets. By conducting these reviews systematically, you can make informed decisions, adjust your strategy as needed and stay on course to achieving your financial goals. Remember, the key to successful investing is not just in choosing the right investments but in managing them effectively over time.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.