Giving your portfolio a little clean-up important in order to ensure that your investments are functioning as hard as possible and that you aren’t exposed to risks that weigh more than your capacity. It is important to not fiddle with your investments too much though – after all, investments are your assets meant for long-term growth, meanwhile preparing you for great profits.
Every once in a year it is important to review your investment portfolio to figure out if your investments are working for you, and a new start is as good a time as ever. Here’s how you could refresh your investment portfolio –
Check if your portfolio has the right level of risk tolerance for you
An important point here is to review your risk tolerance, especially if the market is moving in a positive direction – it’s safe to assume that you are being fairly risk tolerant. It’s only when the markets crash that you really start discovering how strong your risk appetite is. Instead of figuring out your discomfort with risk the hard way, and by putting yourself in a position of panic-selling during the downturn, reassess as to how much risk you can really tolerate.
Re-balance your portfolio
This once-a-year cleanup of your portfolio generally helps in avoiding your portfolio from getting aggressive or conservative than you anticipated. Re-balancing portfolio means reviewing all your investments, retirement account’s stocks v/s bond balance, see if it matches the goal of what you had envisioned, and shuffle around if it doesn’t. Bring your portfolio back on track with what’s wise for you, given your investment time horizon and risk appetite, by selling some of your stocks and purchasing new bonds.
Check for repetitive underperformers
It’s often tempting to hold onto the dead investments in your portfolio in the hope that they may recover some day, but if an investment has been underperforming consistently in comparison to its peers against the set benchmark, it’s time for you to cut them off and replace such investments. However, before selling, think carefully about why you first chose this investment, and whether your fund manager can provide any convincing reason behind its underperformance.
Revise your Contributions
If you have been a regular investor for a long time, it’s certain that your financial circumstances have changed and now you might want to make a little extra contribution per month. For instance, if you have been promoted or switched to a new job, you can afford to boost your monthly savings.
However, on the other hand, you may want to divert your money elsewhere with added responsibilities as per the current situation.
Consolidate your accounts wherever possible
This will help you in monitoring your portfolio infinitely easier. It’s hard to keep a track of all your investments on a regular basis, but if you have a slew of statements arriving intermittently which you don’t attempt at opening, it’s even more of a nuisance. Revise and check if you have more than one fund that has a similar objective, if yes, merge them. When you have a bunch of accounts scattered here and there, it’s simpler to either ignore some of them or all.
Taking a little time off to double cross-check your revised risk appetite, your asset allocation, rebalancing current portfolio and consolidating accounts wherever necessary, this should help you for a more efficient and successful experience as an investor.