Generally speaking, the important step in investing is supposed to be simply finding the space in your budget to put away money. Once you’ve been able to set your recurring 401k contributions, you can sit back and relax, right? Unfortunately, not always. While the danger in over-managing your 401k is pretty clear, there are also potential problems in failing to take action when things aren’t going well.
Keep reading to find out some red flags to pay attention to when investing.
An underperforming investment portfolio can wreak havoc on plans for retirement. Compound interest plays a key role in building wealth over time, so when the rate you’re compounding at keeps coming up short, it means your money isn’t growing at the rate you deserve.
Fortunately, there are plenty of ways to identify a portfolio that’s in trouble, or even just underperforming. By keeping an eye on a few key indicators, you can get a sense of when it’s time to step in and take action to correct things.
Here are five warning signs that your portfolio is in need of a tune-up.
1. You Don’t Have Clear Investment Objectives
Without knowing what you want out of your portfolio, it’s impossible to have a clear sense of where you’re going.
2. Your Portfolio Doesn’t Do Nearly as Well as Your Benchmark
If you’re underperforming your benchmark, look for ways to reduce fees and other costs, or rebalance your assets.
3. Your Portfolio Moves in Exact Tandem With the Stock Market
Diversify across different asset types to protect yourself from being overexposed to volatility in any one area.
4. You Can’t Sleep at Night
Everyone’s risk tolerance is different, and if your portfolio is causing you angst, it’s probably time to invest in safer assets that won’t cause you so much anguish.
5. Your Fees Are Larger Than Your Profits
Investments like mutual funds can frequently charge fees for managing your money. If they’re eating up most of your returns, it’s time for a change.