How Do You Review Your Investment Portfolio (2018 Update)

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on April 10, 2018

How Do You Review Your Investment Portfolio (2018 Update)

KEYWORD PHRASES: How to do investor profiling, types of investor profile

Once you have created your investment profile, the next task is to make the most of it. And to do that you need to review your investments from time to time. A lot of traders fail to check their profile as and when required and as a result end up making knee-jerk decisions while investing. Your financial profile needs to be reviewed at least twice a year so that you can rebalance your investments, curtail your losses and develop a successful strategy for managing risks.

investment portfolio
investment portfolio

While going through your profile, you need to focus on quality or quantity. The trick is to not make hasty decisions based on quarterly results as it can have a negative impact on your overall returns. Also, always checking your profile may do you more harm than good. Most people tend to hate losing money as opposed to making it. If you constantly keep going over your investment profile, your decisions could be based on your aversion to making losses. Though this conservative approach may prevent your losses but it will also hinder your growth prospects. So, the best way to go about reviewing your financial profile is by using the following parameters to review your investment profile, and the tips mentioned below:

Parameters to review your investment portfolio

Investment goals

Every investor has a set of financial goals that they plan to achieve through their investments. From being able to retire early or growing your wealth by x percent over a period of time, people have all sorts of financial goals. While reviewing your investment profile, you need to see if your investments are showing progress. You could even set milestones for your goal and see to it that everytime you review your profile you are moving closer to your investment goal.

Risk to reward ratio

Risk is the uncertainty of getting the returns you expected at the time of making the investment.The risk/reward ratio is data that investors use to estimate the expected returns and the amount of risk involved. It is calculated mathematically and is used to measure trading individual stocks. While you keep track of the risk to reward ratio, you need to balance you risk-return trade-off. We all know that risk and return are directly proportional. High risk options like equities tend to give higher returns whereas investing in cash, deposits, and liquid investments have virtually no risk but provide low returns. Investing in bonds, debentures, mutual funds have some risk and provide moderate returns. While checking your investment portfolio, you need to be mindful about the risk and return trade-off for your investments.

Asset allocation

Asset allocation is dividing your investments in different asset classes like stocks, real estate, equities, bonds etc. It differs based on your capacity to handle market related fluctuations and is in a way a reflection of your personality. You may have done this while building your investment profile but over a period of time the proportion of funds allocated to each investment option may vary. Make sure your investment goals align with your current asset allocation.

Diversification

Diversification is the prime goal of the conservative investor. The rationale behind diversification is that when you spread your investments across various asset classes and industry sectors, you drastically reduce the risk of making losses. So if one particular asset class or company fails to perform well at the stock market, you have other investments that can balance out your losses. Reviewing your portfolio regularly will prevent you from investing in just one asset class or company.

Tips for reviewing your investment profile

Schedule periodic portfolio checks

As mentioned above reviewing your portfolio very frequently can have a negative impact on your investment returns. And not reviewing for prolonged periods of time can also work against your investment strategy. Ideally, you should review your investment portfolio 3-4 times a year. However if you are opting for individual stocks, then you need to check your portfolio more frequently.

Evaluate the performance of your investments

This goes without saying, when you review your investment portfolio at a macro level, you need to identify the investments that are fetching you higher returns and those that are causing you losses. Based on this evaluation you can take a call as to where else you need to invest and get rid of the stocks that have consistently been underperforming. If need be, you can even consult with a financial advisor to make the necessary changes in your profile.

Rebalance your assets

Financial experts suggest that you should rebalance your assets at least once or twice a year. Rebalancing is the process of realigning your asset allocation to match your desired mix of investments. It involves buying and selling of assets based on the overall performance of your investments.

What is your investment strategy and how do you review your investment portfolio. Let us know in the comments section below.

 


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great advice as always! thanks!!
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