Should You Make Changes to Your Investment Portfolio

As one of the worst quarters in several years comes to a close you may be asking yourself if you should make changes to your investment portfolio.  It is always good to review your portfolio on a quarterly or annual basis to make sure you are on track to reach your goals.

Here are some questions you should ask yourself when thinking about making changes.

1. How did your investment portfolio perform compared to the market?

This is very important.  Just because you see a negative return on your statement does not mean you had a bad portfolio.  Over an investment lifetime you will most definitely experience negative returns.  What you want to make sure is that your portfolio performed within your expectations and consistent with the market.  For example if you have a 50% Equity Portfolio and a 50% Fixed income portfolio and your portfolio lost 3% when the S&P 500 lost 6% you may be right on track and your portfolio is working.  In addition to the overall portfolio you can compare each fund to an index.  For example if you have a large cap growth fund in your portfolio you can compare it to the S&P 500 and if your fund lost 10% and the S&P lost 6% you may have a problem.  Your fund may be highly concentrated in a few stocks or you may not have a large growth fund at all.  Comparing funds to the appropriate index is very important.

2.  What is your asset allocation now?

Most investors do not have a specific target asset allocation like 70% Equity and 30% Fixed Income.  Most investors are aggressive or conservative and do not have a specific target.  Having a specific target allocation is a great way to review your portfolio and look for opportunities to rebalance.  Let’s say your target is 70/30 and the market has a big drop and your portfolio is now 60/40.  Assuming the 70/30 is still the right allocation to reach your goals you should rebalance back to 70/30.  Essentially you should sell fixed income and buy equities.  This is a great way to sell high and buy low.  This can also work in reverse if the market increases significantly.  If your portfolio goes up to 80% equity and 20% fixed income you should sell equities and buy fixed income.

3. Has anything changed in your life that would affect your retirement goals or needs?

Take some time to think about where you are in relation to your investment experience and if anything may have changed that would cause a change. Are you getting close to retirement?  Did you lose your job?  Do you have a big purchase coming up? Did you inherit money?  These are all reasons why you may want to reevaluate your asset allocation.

4. Can you sleep at night?

If the recent market turmoil caused you anxiety to the point where you are depressed or you want to sell everything you may want to tweak the portfolio to be more conservative.  If you do decide to make a change you will need to reevaluate how it will affect your goals.  This may cause you to work longer or need to save more.

Most importantly you should have a financial plan in place and an investment strategy consistent with the plan.  Instead of making emotional changes to your portfolio based on short-term market fluctuations, take a step back and review your plan.  Gather all your assets, project your spending needs pick a return that is within your risk tolerance and run the numbers.

If you are still on track then great!  If not, reevaluate all assumptions, not just your portfolio.

To learn more about JSK Financial Services, view their Paladin Registry profile.  

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