How to Review Your Investments

Roger Wohlner

So far in 2013 we have seen the major stock market benchmarks reach record levels. We have also seen quite a bit of volatility in both stocks and bonds in recent weeks, with many bond funds taking it on the chin in terms of losses over the past few weeks. With the end of the second quarter upon us this is an excellent time to take stock (pun intended) of your overall investment portfolio and your individual holdings. When reviewing your portfolio:

Compare each individual holding to an appropriate benchmark. If you own a small-cap mutual fund or exchange-traded fund, it should be compared to a benchmark such as the Russell 2000 Index and certainly to other funds in its same category when judging the fund's performance. You should be able to find benchmarks that track investments similar to each component of your portfolio. Making comparisons to a benchmark should help identify portions of your portfolio that may need an adjustment or that you want to start monitoring more closely.

Calculate your overall rate of return, comparing it to your expected return. When designing your investment program, you probably assumed a certain rate of return that determined how much you needed to invest to achieve your financial goals. Calculating your actual return will determine if you are on track. In spite of recent volatility including declines in many fixed income investments, you are likely to find you have made some progress toward your financial goals over the past couple of years. You should evaluate your progress against your financial plan, evaluate if you are saving enough (or too much), and if your asset allocation remains appropriate.

Review your overall asset allocation to determine whether changes are needed. Portfolio review time is a good time to compare your actual allocation to your desired allocation. You may find you need to make changes for a variety of reasons. Over time, you will find your allocation shifts due to varying returns on different assets. You may also need to sell certain investments that are not meeting your expectations. Your asset allocation is likely to need refinement, since your strategy will change over time. Given the recent trends in bonds and the prospect of rising interest rates this is a good time to take a hard look at your fixed income holdings and perhaps make some changes. Do you need to shorten up on the duration of your bonds and bond funds? Should some of the money allocated to fixed income be allocated elsewhere? Additionally you should review your entire investment portfolio on a consolidated basis across the various accounts that you might have such as an individual retirement account, a 410(k), taxable investments, etc.

If you are not comfortable doing this yourself, considering hiring professional help. You may not have access to the information and tools needed to perform an in-depth analysis of your holdings and your overall portfolio. Further, a professional adviser can provide you with a detached third-party point of view to help you make changes where needed.

Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.