Monitoring your portfolio


It’s important to monitor your investment portfolio and update it periodically. Even if you’ve chosen an asset allocation, market forces may quickly begin to tweak it. For example, if stock prices go up, you may eventually find yourself with a greater percentage of stocks in your portfolio than you want. If stock prices go down, you might worry that you won’t be able to reach your financial goals. The same is true for bonds and other investments.

Even things out
To bring your asset allocation back to the original percentages you set for each type of investment, you’ll need to do something that may feel counterintuitive: sell some of what’s working well and use that money to buy investments in other sectors that represent less of your portfolio.

If stocks have risen, a portfolio that originally included only 50% in stocks might now have 70% in equities. Rebalancing would involve selling some of the stock and using the proceeds to buy enough of other asset classes to bring the percentage of stock in the portfolio back to 50%.

Typically, you’d buy enough to bring your percentages back into alignment. This keeps what’s called “a constant weighting” of the relative types of investments. One rule of thumb is to rebalance your portfolio whenever one type of investment gets more than a certain percentage out of line — say 5% to 10%. You should also set a regular rebalancing date.

Points to consider:
1)    Keep an eye on how different types of assets react to market conditions. Part of fine-tuning your game plan might involve putting some of your money into investments that behave differently from the ones you have now. Owning investments that go up when others go down might help to either lower the overall risk of your portfolio or improve your chances of achieving your target rate of return.

2)    Stick to your portfolio monitoring strategy. If your plan is to rebalance whenever your investments have been so successful that they alter your asset allocation, make sure you aren’t tempted to simply coast and skip your review altogether. Always double-check with your financial professional if you’re considering deviating from your strategy.

3)    Check to see that the nature of what you’ve invested in hasn’t changed. For example, you may have a mutual fund that’s investing more overseas now than it was when you originally bought it. That could mean your overall international exposure is higher now than when you first invested. This kind of “style drift” can affect the risk you’re taking without your knowing it.

4)    Some investments don’t fit neatly into a stocks-bonds-cash asset allocation. You’ll probably need help to figure out how hedge funds, real estate, private equity and commodities might balance the risk and return of the rest of your portfolio.* Also, since new investment products are being introduced all the time; you may need to see if any of them meet your needs better than what you have now.

*Diversification and asset allocation strategies do not assure profit or protect against loss.

 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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