Time for a (Portfolio) Checkup?

By Michael Schoonmaker - June 26, 2018

Maybe you traded New Year's resolutions for a healthy financial game plan in January. If not, you may be due for a mid-year checkup.

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. (Don't have a comprehensive financial plan? Find out how to get started.)

A Prescription for Portfolio Health

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. Even if you're feeling lucky, 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 over that time period, which will have 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 integrate other people into 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 may have 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 while simultaneously introducing more risk to your portfolio than you intended. In this case, it may be time to rebalance, or sell your winning holdings and get your portfolio allocation back to your original plan.

Sample Portfolio: 60-30-10 Allocation

Original Allocation

For example, you may have decided to allocate 60% of your portfolio to stocks, 30% to bonds and 10% to cash investments.

Out of Balance

If market activity causes the value of the stock portion of your portfolio to increase significantly, you'll have a greater percentage invested in stocks, leaving you exposed to more risk than you intended.

Rebalanced

Rebalancing—buying more bonds and cash investments and selling stocks—gets your portfolio back to your desired 60/30/10 percentage mix.

Source: American Century Investments®

If you don't want to rebalance individual holdings yourself, learn more about asset allocation portfolios. These professionally managed, automatically diversified investment solutions come in a single portfolio—a helpful option for long-term financial goals.

Commit to Regular Checkups

A solid plan and a long-term view are important drivers of investment success. If you need help making changes to your portfolio after your review, we have investment tools that can help you get back on track.

If you find you’re in need of more in-depth professional financial planning and wealth management, give us a call.

Michael Schoonmaker
Michael Schoonmaker
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      Diversification does not assure a profit nor does it protect against loss of principal.

      Rebalancing allows you to keep your asset allocation in line with your goals. It does not guarantee investment returns and does not eliminate risk.

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.