Keep Your Portfolio on Track - Presley & Partners - Presley & Partners


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Keep Your Portfolio on Track

March 17th, 2017

chessStock market volatility can make it seem difficult to determine how to adjust your portfolio. Should you leave it alone or take drastic measures? The appropriate answer probably lies somewhere between those two extremes. What you should do is thoroughly review your portfolio. Consider these tips when analyzing your investments:

Review your financial goals. If your portfolio declines substantially, it will probably affect your financial goals. Recalculate how much you need to save on an annual basis, based on your investments’ current value and a reasonable future rate of return. Be prepared to readjust your goals. For some people, one of the most painful results of market declines is the realization that they may have to delay retirement.

Set an asset allocation strategy. The most basic investment decision you’ll make is how to allocate your portfolio among the various investment categories, such as cash, bonds, and stocks. You want to ensure your portfolio is diversified among a variety of investments, so when one category is declining, hopefully other categories will be increasing or not decreasing as much.

To decide how to allocate your portfolio, you first need to come to terms with your risk tolerance. Factors like your time horizon for investing and return expectations also impact your decision. Once you decide on an asset allocation strategy, you need to adjust your current portfolio to get it in line with that allocation.

Assess each investment in your portfolio. Some stocks may rebound from market declines, while others may never bounce back. If you think an investment won’t rebound, or will take a long time to do so, sell it and reinvest in others with better prospects. It’s a painful thing to do, since most investors have an aversion to selling at a loss. But it’s an important step if you want to make sure your portfolio is on track going forward. Also make sure your remaining investments are all adding diversification benefits to your portfolio.

Just because you own a number of investments doesn’t mean you are properly diversified. Often, investors keep purchasing investments similar in nature. That doesn’t add much in the way of diversification and makes the portfolio difficult to monitor.

Look for long-term comfort. It’s tempting to look for the biggest investment winners and put your money there. In essence, however, you are chasing yesterday’s winners rather than tomorrow’s winners. Keep in mind that the best performing investment category changes from year to year.

A better strategy may be to select a diversified portfolio of investments you’re comfortable owning for the long term, so you have some money invested in each of the major investment categories.

Use dollar cost averaging to invest and pay attention to tax implications.

Review your portfolio at least annually. You can’t just adjust your portfolio now, and then leave it on autopilot. You need to keep an eye on it, in case changes are required. By reviewing your portfolio annually, you’ll have an opportunity to make adjustments on an ongoing basis, which should prevent major overhauls in the future.