Tips for Evaluating Your Investment Portfolio

Tips for Evaluating Your Investment Portfolio

Monitoring your portfolio is an important part of investing. This enables you to make important adjustments to your investments as needed. It also helps you stay on track toward your financial goals.

Below we provide a few tips and tactics for monitoring your investment portfolio.

General Advice

Don’t Check Too Often

Checking your portfolio too often can do more harm than good. According to Time, quarterly check-ins are more than enough. For most, once or twice annually will do.

Time states: “Think quality, not quantity. Avoid making knee-jerk decisions because of one good quarter or bad quarter.”

Avoid Loss Aversion

Checking too often can lead to what’s called ‘Loss Aversion’. According to Time, this the phenomenon that most people hate losing money far more than they love making it—so much so that they will make bad decisions in the name of avoiding future pain.

Organization is Key

Avoid financial clutter by organizing your various accounts into one portfolio. Also, make sure you are receiving statements from all investment and retirement accounts on a regular basis. According to US News: “This will show you how well you are diversified across different asset classes.”

US News also recommends consolidating accounts where possible. This makes monitoring your portfolio much easier. If you have several IRAs and 401(k)s from previous employers, considering consolidating them in one place, such as a single IRA account.

Always Keep Fees in Mind

Investment fees are a critical component to track. Anytime you have a transaction, it inherently involves costs. Forbes notes that for more expensive products: “Over time, [fees] can reduce a portfolio by tens if not hundreds of thousands of dollars.”

How to Monitor Your Investments

Now that you have a few ground rules, it’s time to look at a few ways to evaluate your portfolio.

Create a Financial Plan

With a financial plan, you can determine how much risk you need to take to potentially earn the types of returns you’re targeting. More specifically, determine the types of investments, such as stocks, bonds, and cash, as well as how to appropriately allocate each type.

Look at the Whole Picture

Does your spouse also work? Have you had multiple jobs in your career? It’s very common these to have investments spread over many accounts. Be sure not to evaluate these accounts in isolation. It’s critical to review your investments as a total portfolio across all of your accounts.

Also, Time recommends starting with a broad-brush view of your portfolio. At the most basic level, look for outliers and big changes.

Establish Benchmarks

Benchmarks help you to determine if you’re on track with your financial plan. To evaluate the performance of your portfolio, US News recommends establishing a weighted, blended benchmark to measure against your target allocation: “If your allocation is 50 percent stocks and 50 percent bonds, your benchmark might be weighted 50 percent to the Russell 3000 Index and 50 percent to the Barclays Aggregate Bond Index. You should also track your overall accumulation progress versus the various goals set forth in your financial plan.”

In a CFA Institute study, researchers found that for most investors, the best strategy was to rebalance once a year and only if your asset allocation is more than 5% off its mark. In other words, if your target allocation is 60% stocks and 40% bonds, you don’t need to rebalance until you get to 66% stocks and 34% bonds.

Evaluate Individual Holdings

After you’ve aligned your overall allocation, look at your individual holdings. For mutual funds and ETFs, US News recommends comparison against market benchmarks and peer group measurements appropriate for the type of fund you are holding. For example, using the S&P 500 Index as a benchmark may be appropriate for a large-cap fund, but not for a small-cap or foreign stock fund. For individual stocks, look at an appropriate market index. If your stock holding has underperformed the index, perhaps you would be better off investing in a mutual fund or exchange-traded fund that tracks the associated index.

Get Help from a Professional

Monitoring your investments is not easy, so if you’re looking for additional insight, it may make sense to hire professional help. But note that it’s critical to make your objectives clear at the outset of the relationship. By setting expectations, you’re less likely to disappointed with the service and advice you receive.

There are many outlets for advice on your investment portfolio. But a local community bank like the Bank of Southside Virginia may be a good place to start. They pride themselves on taking the time to talk you through the nuances and complexities inherent in many financial decisions.

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