If there’s one constant you can count on in life, it’s that things change.
Investing is no exception. Markets shift. Fund managers develop new strategies. Companies transform themselves. Your life evolves.
Just as you regularly visit your doctor and dentist to manage and maintain your health, you should also perform regular checkups on your investment portfolio to assess your strategy, asset allocation, and individual holdings.
Here are three steps you can take today to help ensure you meet your goals for tomorrow.
Start by reviewing your portfolio’s returns—at least annually—if not more frequently. Has your portfolio’s performance fallen short of your assumptions over a long period of time? If so, you may need to save more or revisit your investment allocation.
Have your investments performed as well as comparable investments over time with regard to your strategy? Check the returns of your stock, bond and cash holdings against benchmark indexes that are appropriate for each. Your returns should be close to the relative benchmarks. If your returns differ dramatically, you may want to review your portfolio to understand what is causing the difference.
As you review, keep in mind that short-term performance shouldn’t weigh too heavily in your decision-making when you’re investing for the long term.
Does your mix of stocks, bonds and short-term investments match your goals, risk tolerance and time horizon? For example, if you have more years until retirement, you may be able to take on more risk in your portfolio and aim to hold a greater proportion of stocks than bonds. On the other hand, if you’re nearing retirement, you may want to have a more balanced portfolio. Life changes—such as a job change or new family situation—should prompt you to review and potentially revisit your strategy.
Then, make sure you’re diversified within each asset class. If you like stock funds, you may want to choose funds that invest in the stocks of companies that span small, medium and large capitalization, as well as differing geographies. If you invest in bond funds, consider funds with varying maturities, styles, and sensitivity to inflation and interest rate changes. Keep in mind that neither diversification nor asset allocation can ensure a profit or guarantee against a loss.
Want a simpler way to diversify? Consider the UC Pathway Funds. These funds are designed for investors expecting to retire around the year indicated in each fund’s name. Each fund is managed to gradually become more conservative over time as it approaches the target date.
The ultimate purpose of a portfolio checkup is to bring your investments into line with your evolving goals. In order to do so, you need to begin with a plan that includes those goals. Once you have your plan in place, set a date for your next portfolio review within one year to ensure your finances stay on track.
Fidelity Brokerage Services LLC, member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
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