Portfolio Reviews & Effective Approaches

So, you have a financial plan in place.  You’re set.  Right?  Well, for a while at least.  While financial experts sometimes disagree on methods or theories, there is one thing they all agree on,  this is not a set-and-forget activity. How you approach portfolio reviews can make a significant difference to the performance of your investments.

There are two key reasons why you should regularly review your portfolio:

1 – Maintaining The Right Risk/Return Balance

Whether you are an active or passive investor, over time your portfolio balance changes.  This is because some investments inevitably outperform others, leading to them making up a larger percentage of your portfolio.  When this balance shifts too far, it misaligns your portfolio with your risk profile, leading you to a risk that you may find uncomfortable.

2 – A Changing Risk Profile

Over the course of your life, your risk profile will fluctuate.  Just like the black runs at Thredbo, the financial risks we were happy to take when we were in our twenties suddenly look a lot scarier when we are in our fifties.

If you are not sure what your risk profile is, or if it has changed, have a look at our article on Modern Portfolio Theory.  You might also like to look at our article Ingredients of a Financial Plan – Portfolio Management to help identify the type of portfolio you have, or would like to have.

When Should I Review My Portfolio

You can choose one of three methods for setting up a regular review:

1. Time-based. This means deciding how often – every 6 months, every 12 months?  And then deciding when.  It can be a good idea to link this to another event, like the end of the financial year, to make it easy to remember.
2. Percentage-based. When you originally set up your portfolio you will have decided what percentage you wanted in each type of investment, 60% in shares, 40% in bonds for instance.  You may have also identified at what point a shift is concerning for you, in other words, what is your drift tolerance level?  It may be if your shares reach 65% of the overall portfolio you feel it is time to review.  But if you have decided that figure in advance, it is easy to see when you need to consider realignment.
3. Life-based. Any time your circumstances change is an ideal time to review your portfolio.  When you get married (or divorced), have children, are approaching retirement, suffer illness or injury.  These are all good times to not only look at whether your portfolio remains well-balanced, but to review whether the risk profile you have been working with is still relevant, and whether your investments are meeting your needs and changing goals.

Of course, the optimum is probably using a combination of all three.  An investment portfolio should be a living breathing thing and keeping a close eye on it, even if you choose to make no changes, will give you peace of mind.

How Do I Review My Portfolio

Keeping clear records year on year will help you when it comes time to review your portfolio.  At each review you should:

• Look at how your portfolio balance has changed since you set it up, or since your last review. How much has it drifted from your original balance profile, and is this within your tolerance level?
• Determine whether your portfolio is continuing to meet your goals. Have your goals changed, or do you expect them to in the near future?
• Establish whether there has been a change in your risk profile. If so, does your current mix of investments reflect that risk profile?
• If you have determined your portfolio requires rebalancing, do you feel comfortable deciding which investments to sell, or would professional advice be worthwhile?

Professional Help

Overlaid across all this, of course, is the performance of the market and potential opportunities.  This is why seeking professional help is so worthwhile.  A good financial advisor has their finger on the pulse and can let you know when opportunities that align with your goals and profile come up.  Freeing you up to tackle those black runs with a clear mind.

If it has been a while since you reviewed your portfolio or you are not sure if your Risk Profile has changed, Manly Financial Services can help you determine your next move.  Call us on (02) 9976 3388 or contact us via the button below, to find out more.