It’s a good idea to check your portfolio at least once a year to make sure it aligns with your financial goals. If you’re like many investors, you look closely at your next move but forget to assess the big picture. Here are some tips to shape up your portfolio:
Get a clear idea of your investments
You can’t make sure your portfolio is balanced if you don’t understand how your investments are weighted. This is where an asset allocation comes in. Write down everything you have invested and where it’s going. Make sure you list your 401(k), stocks, bonds and mutual funds.
Figure out where you want to be
If you’re younger, your portfolio can handle more risk than someone who is on the brink of retirement. But if you’re prone to knee-jerk selling, then stocks may not be right for you. It’s important to get comfortable with some risk in your portfolio, but don’t take on more than you can stomach. If you’re curious about where you fall in your risk tolerance, there are quizzes you can take to give you a better idea (like this one from Bankrate.)
Rebalance your portfolio
There are a couple ways to do this, depending on your preference. A simple, more gradual approach is to start investing your money where you want from here on out. So if you want to allocate more to your 401(k) and less to your stocks, hold off on stocks for awhile and put those funds toward your 401(k). That is a straightforward approach to slowly rebalance your portfolio.
If you need more rapid change, this would be the time to buy and sell wherever it’s needed. Rebalancing is also an important step in making sure all of your investments are performing as they should be. How has the market value changed over the year? If something is falling behind, consider selling or buying elsewhere to get back on track.
Another option for rebalancing your portfolio is to make sure you’re diversifying enough. This isn’t just about having a mix of investment types, either. It’s also important to look into different industries, company types and foreign versus domestic investments. This helps offset major industry dips or economic changes over time.
Checking your portfolio and rebalancing it as needed is the best way to make sure your investments are working for you. Just be careful not to interfere too much – managing risk is better for long-term gains than buying on impulse for returns. A well-balanced portfolio won’t need much more than one check in each year, or even less. So once you get a mix you’re happy with, focus more on maintenance and less on totally overhauling your investment strategy.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources (like this financial checklist) and fee-only financial planning. For more information on the services offered, contact Katie today.