How To Review Your Portfolio

Portfolio ReviewFirst of all, you don’t do a portfolio review just when you feel you are in trouble. Just like car maintenance, you need to have a regular portfolio review. You can choose to do it annually, semi-annually, quarterly or even monthly but you need to do it and you need to schedule it when you feel you will have time to do it.

One powerful concept, aside from compound growth, is to balance your portfolio. It’s also imperative that you understand your strategy and have confidence in it. Answer some of the questions below to assess if your strategy is in need of a makeover.

Portfolio Review & Balancing

The concept is simple; you sell part of your winners and buy more of your losers based on your investing strategy. Your winners are your investments that appreciated and your losers are your investments that depreciated.

A regular portfolio rebalancing allows you to step back and make an adjustment without any emotions. It’s purely mathematical based on your allocation strategy. My defined contribution plan with my employer has an automatic quarterly rebalancing and I make use if it.

Here is an example, you might want to have the following hypothetical allocation in a dividend income portfolio.

  • 30% Financial
  • 20% Energy
  • 10% REIT
  • 20% Telecoms
  • 20% Healthcare
Over the year, the Telecoms really crushed it and you are now at 25% and your other sectors have come down but the Financial sector was worse than the others. Based on your desired allocations you might want to sell a portion of your Telecoms to increase your position in the Financial. This process forces you to sell high and buy low. One caveat with stocks is that the trading cost alone may prohibit you from doing so or your portfolio is not large enough yet to rebalance.
I purposely picked the dividend examples since rebalancing with stocks isn’t that simple because your discount broker won’t allow you to trade partial shares and the trading cost can make it expensive. Nonetheless, it’s an exercise you should do. If you trade mutual funds, the process is much easier to match the target percentage you desire due to the ability to trade partial shares.

Cur Your Losses

If you are the patient type, or you don’t review your portfolio weekly or monthly, it’s also an opportunity to assess your losers (if any) and cut your losses. Usually, if you are in a taxable account, you’ll want to do that before the end of the year to maximize your tax efficiency or plan for tax efficiency. Talk to an accountant if you need help with taxes.

Review Your Investment Strategy

It’s also a time to review your investment strategy and make the necessary adjustment. With all the ups and downs in the markets, you may decide that it’s not for you to be in equity or that your allocation is simply too high in a sector.

Here are some questions to ask yourself:

  1. Are you satisfied with your return?
  2. Can you handle your portfolio risks?
  3. Are you on target for your retirement plan?
  4. Do you understand your investments?
  5. Do you understand the fees you are paying?
  6. Do you understand the impact of the fees you are paying?
  7. Do you have SMART goals? (Specific, Measurable, Achievable, Relevant and Timely)

If you answered ‘NO’ to some questions, it’s probably time you review your strategy. Best of luck with your portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

Image courtesy of Stuart Miles /