Portfolio Updates You Should Make This Year



The beginning of a new year is the perfect time to take a close look at your portfolio and make any needed adjustments. While it’s best to monitor your investments regularly, you should make the effort at least annually.

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But what exactly are the updates you should make at the start of a new year? Here’s a look at some of the most important steps you should take to ensure your portfolio is running at an optimal level.

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Rebalance Your Portfolio

One of the most common adjustments investors make at the end or beginning of a year is to rebalance their portfolios. Inevitably, some investments outperform others over the course of the year, and it’s highly likely that you’ll need to make some adjustments to get your portfolio back in line with your original investment objectives. Generally speaking, asset allocators adjust their portfolios when they get out of whack by 5% or 10% throughout the year. If you are only rebalancing annually, it’s likely that at least one of your investment categories is out of balance. For example, if you began the year with 40% in growth stocks, 40% in value stocks and 20% in bonds, it’s likely that in 2021 your growth stock allocation is now too high, and you’ll need to trim it back and boost up your other categories.

The reason for portfolio rebalancing is twofold. First, it ensures that your portfolio continues to have the risk and reward characteristics that you originally planned. Second, it’s a great way to protect your profits on winning positions and add to your underfunded allocations when they are down. Put another way, rebalancing forces you to “buy low and sell high.”

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Review Your Investment Objectives

Your investment objectives describe what you want to achieve with your investments. For example, common investment objectives include growth, income, speculation and preservation of capital. While your investment objectives typically remain the same for relatively long periods of time, you may have to update them depending on major changes in your life. If you recently got married, had kids or developed a disability, for example, you may want to shift your investment objectives. Simply growing older over time is another reason to update investment objectives, as you generally want to get a bit more conservative with your investments as you approach retirement.

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Look For New Opportunities

Investing is not a static proposition. While most people shouldn’t be trading in and out of stocks on a daily basis, you also don’t want to err on the other side of the spectrum, having the same portfolio for your entire life. The start of the year is a great time to look for new opportunities, as new predictions for the upcoming market year are plentiful and you can gather plenty of information that may affect your investments. One trading strategy to consider is to pick up some losing stocks from the prior year. Typically, portfolio managers and individual investors sell losing stocks in December, both to take capital losses and to remove the losing names before they show up on an annual report. When this added selling pressure alleviates in January, names like this can often bounce back.

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Boost Your Savings Rate

Anytime is a good time to increase the amount you save for your investment goals, but the start of the year makes for a great time to boost your savings rate. Even if you can just raise your 401(k) contribution level by 1% annually, for example, it won’t take that long until you are saving serious money, and you will likely hardly even notice such a small incremental increase. Over time, you can aim to increase your savings rate by 1% every quarter, or even every month.

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Trim Fees

High fees can dramatically reduce your long-term investment returns, so whenever possible, you should try to reduce or even eliminate them. Fees have been in a long-term downtrend in the investment world, but that doesn’t mean there aren’t some fees out there that remain stubbornly high. Since investors are now blessed with a wide range of online brokers that charge $0 commissions and have no account fees, there’s never been a better time to get your investment costs under control.

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