Does Your Investment Portfolio Need a Checkup?

More than occasionally checking account balances, you need to set aside time for an in-depth look at your investments.

Have you reviewed your overall portfolio in the last six months? In the last year (or more)? If not, you may be due for a checkup.

Checkups: A Prescription for Portfolio Health

Your financial health depends on a carefully constructed plan that aligns with your age, risk tolerance and goals for the future. Periodic portfolio reviews ensure your plan stays on track.

Checking your portfolio doesn’t always mean making changes. Unlike medical symptoms, portfolio fluctuations may be best treated with a "wait and see" attitude. The temptation to adjust your portfolio during market volatility may result in rash decisions. Why? Focusing on recent ups and downs might cause you to buy high and sell low—the opposite of successful investing.

Making money and avoiding losses involve more than just guessing at the market's direction. To keep your financial plan on course, experts advise a more disciplined approach: Review your portfolio on a regular basis or whenever you experience major life events.

How Often Should You Look at Your Investment Portfolio?

Experts generally say you should review your portfolio quarterly or annually. But no matter which interval you choose, it should be done on a schedule. Regular reviews will help you examine your investments objectively and not worry about the daily ups and downs of the markets. The goal is to make informed, disciplined decisions that can keep your investment plan on track.

Not sure what to look at during your checkup? Here are five steps to help you evaluate your portfolio.

1. Prepare for Your Portfolio Review

Gather your quarterly account statements or log in to your accounts online. You'll want to familiarize yourself with all your holdings and their performance over the last six to 12 months (or since your last review).

Also make note of any additional investments or withdrawals that have had an effect on your overall account balances. You'll also need to consider whether those transactions were part of your initial financial plan or if they were a significant departure from your strategy.

2. Examine Any Recent Life Changes

Job changes, marriage, divorce, birth of a child, retirement, etc., can impact how you invest. It’s important to consider these and other events during your regular review. Significant life changes would also be a good reason for an impromptu review outside of your regularly scheduled checkup.

Questions to consider:

• Does this event affect your previously planned long-term goals?

• Will you need to adjust the amount of money you need for those goals?

• Do you need to add other people to your financial plan or change your beneficiaries?

Certain events may significantly change your plans, but make sure you use your review to stay committed to your future.

3. Has Your Risk Tolerance Changed?

While life events could trigger a change in how you think about investment risk, your overall risk tolerance will likely evolve.

Younger investors generally need the long-term growth potential of stocks, but preretirees and retirees may not want that level of risk exposure so close to retirement. That means your stock allocation would need to shift downward over time. Building that shift into your regular checkups will help you decide when and how much to change your portfolio allocation.

Evolving Portfolio Makeup

Sample Portfolio Shift in Stock, Bond and Short-Term Investments Over Time

^{Source: American Century Investments. Each investor's situation is different. This chart is for general educational purposes only.}

4. Watch Your Portfolio Weights

Have your portfolio allocations changed since your last review? Over the past few months, market fluctuations have likely caused the value—and corresponding weightings—of your portfolio holdings to increase or decrease.

An overweight stock allocation, for example, can increase the value of your portfolio. But it also simultaneously adds more risk to your portfolio than you intended.

In this case, it may be time to rebalance, or sell some of your winning holdings and get your portfolio allocation back to your original plan. Here’s what that may look like.

Rebalancing Your Healthy Mix

Sample Portfolio Allocation

^{Source: American Century Investments. Each investor's situation is different. This chart is for general educational purposes only.}

^{Rebalancing Your Healthy Mix
Original Portfolio Allocation: Your investment plan may call for a 60% allocation to stocks, 30% to bonds and 10% to cash investments, such as money markets.
Out of Balance: If the value of your stocks increases due to market activity, you'll have a higher percentage (80% in this example) invested in stocks. That leaves you exposed to more risk than you intended in your original plan.
Rebalanced Allocation: By buying more bonds and money markets and selling stocks, you can rebalance your portfolio and get back to your original 60/30/10 mix.}

If you don't want to rebalance individual holdings yourself, learn more about professionally managed asset allocation portfolios. These diversified investment solutions come in a single fund—a helpful option for your long-term financial goals.

5. Diagnose Your Tax Situation

Taxes can play a significant role in your portfolio’s value over time. Investment income (through dividends or interest) and selling investments (with gains or losses) may impact your tax liability, so it’s important to monitor the tax implications of your investment decisions.

Commit to Regular Checkups

A solid plan and a long-term view are important drivers of investment success. If you need help with your review or want help making changes to your portfolio after your review, we’re here for you. You can book a personal consultation with one of our financial consultants to talk through your plan.

If you find you’re in need of more in-depth professional financial planning and wealth management, our premium advice service, Private Client Group, offers professional advice and portfolio management.