Investing experts always say to ignore daily market fluctuations and to not check balances too often. But when should you start to worry about your portfolio?
While investing for the long haul and not thinking about short-term ups and downs is generally sound advice, there are definitely times when you should be making adjustments to your holdings.
Click through to learn the signs that your investment portfolio needs help.
1. You Don’t Have Clear Investment Objectives
Investment objectives are the goals you have for your money. As a new investor, you might not fully understand what investment objectives are. But after gaining experience, you should have a clearer idea of your objectives and might want to update your portfolio. Investment objectives also tend to change over time. A 20-year-old investor, for example, typically wants a higher-risk portfolio than a 70-year-old investor. If you aren’t clear about what you want at any given time, your portfolio won’t achieve the goals you have for it.
Learn how to set investing goals to optimize your earnings.
2. Your Portfolio Doesn’t Do Nearly as Well as Your Benchmark
A benchmark is a sample investment or market index that is similar in structure and function to your own portfolio. Many stock investors — including professional investors — target the S&P 500 Index as a benchmark to equal or exceed. If the performance of your portfolio is consistently lower than that of your benchmark, it could be a red flag that you should make some changes. No investors can outperform their benchmarks year-in and year-out. But if you’ve never come close to even matching your benchmark, your portfolio could be suffering from high costs, inconsistent investing, selling low or a host of other problems, all of which should be corrected.
3. Your Portfolio Moves in Exact Tandem With the Stock Market
If you feel you’ve achieved proper portfolio diversification but your investments trade point-for-point with the stock market overall, you’re fooling yourself. Some portfolios are so diversified that they’re actually over-diversified, becoming mirrors for the market itself. The only way to fix this problem is to work some true diversification into your portfolio. If your account goes up and down in lockstep with the Dow Jones Industrial Average, for example, add in some mid- and small-cap stocks to diversify yourself away from a strictly large-cap portfolio. Also, consider adding in bonds, foreign stocks or gold to your asset allocation. These diversification strategies are things first-time investors need to know.
4. You Can’t Sleep at Night
If you’re so anxious about losing money in your account that you can’t sleep at night, it’s a clear warning sign that your portfolio needs adjustment. Everyone wants the highest returns possible, but higher potential returns usually come with higher risk. After you’ve defined your investment objectives, make an honest assessment of the risk you’re willing to endure. Trimming your potential returns slightly in exchange for investing with less stress is a good trade-off for many investors. Plus, there are safe investments that still offer solid returns.
5. Your Mutual Funds Move in Lockstep With Each Other
Typically, assembling a collection of mutual funds is a good way to ensure diversification of your investments. However, the top holdings of many mutual funds actually overlap, regardless of their stated investment strategies. If the funds in your portfolio all seem to go up and down in lockstep, it’s time to dig deeper into what those funds actually own. If you’ve got five of the best mutual funds and find that the top 10 holdings in each fund are the same, you aren’t diversified at all.
Diversify With the Best: 20 Great Mutual Funds
6. The Bulk of Your Money Is in Company Stock
Most investment professionals will tell you that if you have all of your savings in the stock of the company you work for, you’re asking for trouble. One of the cornerstones of investing is that you should never put all your eggs in one basket. When you work for a company, you’re already “invested” in it since you rely on that company for income and benefits. If you’re also putting all of your 401k money in your company stock, your whole financial future is tied to the performance of that one company. That is taking an enormous risk with your future.
7. Your Fees Are Larger Than Your Profits
Fees are where investment profits go to die. With so many low-fee and even no-fee investment options available these days, paying too much in investment expenses is a sure sign that your portfolio needs tweaking. Check how much you’re paying at every step of the process, from the fees you pay for portfolio management to the annual expenses that your mutual fund or exchange-traded fund charge. Compare those costs with other available options to find the right blend of cost and service or performance.
Learn More: 10 Hidden Fees to Watch Out for in Retirement
8. You’re Not Investing Regularly
Although some savings are better than no savings, you shouldn’t view your portfolio as a “one and done” vehicle. Regular investing makes it much easier to reach your long-term goals, and it comes with a side benefit — by always adding fresh money, you can buy stocks at lower prices. Corrections, or drops of at least 10 percent, happen once per year on average. If you’re always adding money to your portfolio, you can buy during the dips.
9. You Don’t Have Enough in Stocks
There’s no doubt about it: Investing in stocks can be scary. In just nine trading days — from Jan. 26, 2018 to Feb. 8, 2018 — the S&P 500 Index fell more than 10 percent. Even though corrections happen, the stock market has the best long-term return of any major asset class, including bonds and cash. In fact, over the long haul, you could even make the argument that stocks are a low-risk investment, as there has never been a 20-year period when the S&P 500 Index lost money for investors. Even conservative investors need the growth characteristics of stocks for at least a portion of their portfolios. Learn how to get started investing in stocks.
10. Your Portfolio Is Out of Balance
Investment portfolio management is a process. If you’ve done the hard work and hand-picked investments that match your objectives and risk tolerance, it doesn’t mean you should tune out and never check your statements. Over time, your portfolio is likely to get out of balance, either with underperforming investments becoming too small a portion of your portfolio, or winners claiming too large a piece of the pie. If you don’t watch your investments and rebalance them when they get out of whack, your portfolio will no longer match your investment objectives and risk tolerance, taking you in a different direction than you originally intended.
About the Author
After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.