When was the last time you’ve checked your online broker accounts or mutual funds lately?
Once you build an investment portfolio, you’ll need to keep tabs on how it performs. Tracking your investments may seem like a lot of babysitting in some cases, but it all depends on what you own. Owning a lot of individual stocks will probably require you to track their performance and fundamentals quite often — at least around once a week — to make sure that you’re on top of the research behind the companies they represent. If you’re unable to dedicate this kind of effort to stocks, then going for less time-intensive alternatives such as managed mutual funds, index funds or target funds are good options. Despite all this, you’re still responsible for making sure you’re headed towards your goals and that your asset mix is still working out for you.
How To Evaluate Your Investment Portfolio’s Performance
#1 Review your present net worth and particularly, the value of your investment portfolio regularly. This is something you’ll want to try to do periodically. Keep up with your accounts at your discount broker, bank or mutual fund company. I know some finance bloggers who do it on a monthly basis, but every three to six months may be sufficient for your regular net worth check ups. Knowing where you stand is the first step to gauging how well you’re doing overall.
#2 Check how your portfolio is doing against its benchmarks.
With the markets, everything is relative. You’re doing very well if you’re investments are performing at least as well as their respective indexes. Check each of the asset classes that are represented in your portfolio and see how they’re doing against their comparative index and if there are discrepancies, figure out why! Those prospectuses, fund/company stock reports and investment performance reviews that come by your home or online inbox every few months are quite handy because they explain what the deal is with your holdings. For example, if your whole portfolio is primarily invested in US equities, see if it’s doing at least as well as the Total Stock Market Index, which tracks the entire market; or the Wilshire 5000, as represented by their ETFs. If something’s not quite right, you may want to make adjustments. Check the performance of stock market indexes here, or take a look at their corresponding ETFs.
#3 Compare the individual investments in your portfolio against their peers in the same asset class.
Each of your funds or stocks is part of a bigger universe of like investments. I’d suggest comparing how your individual fund or stock is behaving relative to other funds or stocks that are in the same industry or sector. You’ll have to be careful about comparing apples to apples though, but if you note some glaring differences or a pattern of underperformance, it may be time to do some switching.
#4 Ensure that your investments remain on target according to your established goals.
Evaluate how each investment is doing and confirm its place in your overall plan. Since our lives shift and turn with the years, it is also quite possible that our investments may need to be revisited and perhaps adjusted accordingly. An example of this just happened to my family recently when we decided to temporarily function with only one income for the time being. The job loss we experienced and subsequent plans for starting a business have turned us into more conservative investors, relative to how we used to be. We thus put our interest in some aggressive investments on hold while we navigate this new life phase.
#5 Make the necessary updates and tweaks to your portfolio on a regular basis.
If need be, actually take action and do the necessary work to readjust your portfolio. If your portfolio has shifted from its desired allocation, or your life plan has put a monkey wrench on your financial picture, then make the changes. Sometimes, it’s not even your choice to make adjustments as in the case of one of my 401K plan providers forcing a termination of their service. This forces me to roll over my funds to a Rollover IRA, which was what I had wanted to do for a while but didn’t, due to sheer procrastination. Now, I just have to roll up my sleeves and do it.
Next Steps After Evaluating Our Portfolio
Now that’s said and done, it appears that we are due for a portfolio maintenance check up! Already my spouse and I have decided that some changes will need to be made based on some decisions we finally agreed upon recently. Given some goal changes we’ve made, we are now ready to manipulate our funds according to a new asset allocation model.
Given the scope of the changes and some recommendations by friends in the financial advisory business, we have been contemplating the possibility of turning to an investment advisor for additional guidance and professional counseling in this area. This may come as a surprise to many, given that I am a self-proclaimed DIYer when it comes to investments. But without giving away much more info, I will just say that depending on where you are in life and what your goals are, you may decide that working with a professional may actually be much more beneficial! Remember that it’s all about leveraging your time wisely as time IS money. If you’ve chosen to focus on other things that will take you away from doing a good job on your own (even as it pertains to money management and investments), then it may be time to call on other forces to act as another set of eyes to help you achieve loftier goals for your money, net worth and assets.
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