A Prescription for Portfolio Health, Even During Volatility
Your financial health depends on a carefully constructed plan that aligns with your age, risk tolerance and goals for the future. Periodic portfolio reviews ensure your plan stays on track.
Checking your portfolio doesn’t always mean making changes. Unlike medical symptoms, portfolio fluctuations may be best treated with a "wait and see" attitude. The temptation to adjust your portfolio during market volatility may result in rash decisions. Why? Focusing on recent ups and downs might cause you to buy high and sell low—the opposite of successful investing.
Making money and avoiding losses is more than just guessing at the market's direction. To keep your financial plan on course, experts advise a more disciplined approach: Review your portfolio on an annual or semiannual time frame, or whenever you experience major life events.
Prepare for Your Checkup
Gather your quarterly account statements or log into your accounts online. You'll want to familiarize yourself with all your holdings and their performance over the last six to 12 months (or since your last review).
Also make note of any additional investments or withdrawals that have had an effect on your overall account balances. You'll also need to consider whether those transactions were part of your initial financial plan or if they were a significant departure from your strategy.
Examine Any Recent Life Changes
Job changes, marriage, divorce, birth of a child, retirement, etc. can impact how you invest and are good reasons for a comprehensive review of your investment goals and portfolio. Questions to consider:
- Does this event affect your previously planned long-term goals?
- Will you need to adjust the amount of money you need for those goals?
- Have your opinions about your risk tolerance changed?
- Do you need to add other people to your financial plan or change your beneficiaries?
Certain events may significantly change your plans, but make sure you use your review to stay committed to your future.
Watch Your Weight(s)
Have your portfolio allocations lost or gained weight since your last review? Over the past few months, market fluctuations have likely caused the value—and corresponding weightings—of your portfolio holdings to increase or decrease.
An overweight stock allocation, for example, can increase the value of your portfolio. Sounds great, right? But it also simultaneously adds more risk to your portfolio than you intended—not so great.
In this case, it may be time to rebalance, or sell your winning holdings and get your portfolio allocation back to your original plan. Here’s what that may look like.