First 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
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:
- Are you satisfied with your return?
- Can you handle your portfolio risks?
- Are you on target for your retirement plan?
- Do you understand your investments?
- Do you understand the fees you are paying?
- Do you understand the impact of the fees you are paying?
- 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.
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