9 Red Flags To Look For When You Check Your Investment Portfolio
When it comes to investing, most people are either actively involved in their portfolio’s management, or have a financial professional who handles it. If you’re not regularly reviewing your portfolio, there are a number of things that could be happening to eat into the growth of your funds over time.
In order to stay on top of your investments, experts say to be aware of these nine red flags when you check your investment portfolio.
Investment Fees
Many people hand the work of their investment portfolio over to an advisor or company and just review their statements once in a while to see how things are going. You could be missing fees by not paying closer attention, according to Christopher Stroup, CFP with Abacus Wealth Partners.
“Scan your quarterly statement to get a quick sense of what you’re paying and whether you can reduce those fees. The average expense ratio for a mutual fund is 0.5% to 1%. Keeping this cost low can benefit your portfolio over the long run.”
Subpar Performance
If your portfolio seems to be performing below what you expected or were promised, this could be a red flag. “Compare the largest three segments of your portfolio to an appropriate benchmark to get a sense of how they have performed against broader unmanaged market indices,” Stroup said.
Ultimately, you are in charge and can ask your advisor or portfolio manager to make changes that help meet your benchmarks.
Lack of Diversity
The term “don’t put all your eggs in one basket” is perfect for investing. Too much of one kind of fund can hold back your money’s growth.
“Diversity is the golden rule of a resilient and flexible portfolio,” Stroup said. “A diverse range of assets helps to mitigate market downturns, maximizing long term earnings and capital gains.”
No Long-Term Goal
One red flag you might not even think of has to do with your own approach to your portfolio. “Everyone should be able to describe the primary goals of their portfolio and how much risk you’re willing to undertake to achieve those goals,” Stroup said.
Uncertainty about your comfort level of risk or lack of knowledge about an investment horizon means you need to get more financial education by speaking with a finance professional.
Changes in Risk Tolerance or Investment Goals
Another red flag could come with age, as your risk tolerance changes. As an investor ages, their risk tolerance may decrease, said Rikin Shah, CEO of GetSure, a nationally-licensed insurance agency and financial services advisor.
“If the portfolio is no longer aligned with goals, it may need rebalancing. Poor returns across multiple asset classes are a cause for concern,” he said. “If stocks, bonds, and other assets are all performing poorly, it could signal issues with asset allocation that need addressing.”
Ongoing Fund Closures or Manager Departures
Keeping an eye on your investment portfolio helps you notice if funds have closed. Additionally, if a fund manager leaves, you’ll want to be on top of that communication chain so someone is still overseeing your portfolio.
“This type of turnover could cause oscillations or poor oversight in an investment portfolio,” Shah said.
A Fund No Longer Meets Your Goals
If you or your financial advisor chose an investment fund for a specific theme or style benchmark, you’ll want to stay on top of how it’s performing, according to Ryan Graves, president of Bemiston Asset Management LLC.
“Sometimes investment managers will begin to drift from that mandate, chasing perceived higher returns,” he said. “I can recall when a few value-oriented investment managers justified buying Apple stock because it started to pay dividends. It created a problem because the portfolios already had significant Apple exposure through growth-oriented managers. Style drift is problematic because it changes the risk-return profile from your desired allocation.”
Inverted Yield Curve
Ziad Abdelnour, founder and president of Blackhawk Partners, keeps an eye on the yield curve, especially if it inverts. “An inverted yield curve, where short-term interest rates surpass long-term rates, has historically preceded economic downturns. This encourages me to review my portfolio in light of potential changes in market conditions.”
Insider Trading Anomalies
Abdelnour also pays attention to insider trading activities. “If there are sudden changes in insider buying or selling patterns, it could suggest upcoming news that may impact the stocks I’m invested in.”
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