Is Your Investing Strategy Due for a Financial Checkup? 5 Ways To Get Back on Track

No investor should have a “set-it-and-forget-it” mentality about their portfolio. Although you don’t need to become a day trader, you should be open to adjusting your portfolio based on your changing age, investment goals, risk tolerance and new developments and opportunities in the investment world.

If you’re not happy with the way your portfolio is performing, or if you simply feel the need to give yourself a financial checkup, here are a few ways that you may want to tweak your investments to get them back on track.

Although some young investors rush to the other extreme when it comes to investing, many others are too timid when it comes to reaching their investment objectives. After all, the stock market can be a volatile place.

But here’s the thing that many people don’t know about the stock market: There has never been any 20-year rolling period where the S&P 500 index actually lost money. While past performance cannot be used to predict future performance, this historical record bodes well for younger investors who may have 35 or more years to save until retirement. At this young of an age, sticking with the stock market over the long run can prove very profitable without as much risk as it may seem.

Although many investors, particularly younger investors, have reason to invest more aggressively, speculation is another matter entirely. While the stock market regularly drops by 10% to 20%, historically it has always returned to new all-time highs. But individual stocks that drop by 50% or more often continue to fall, with some reaching lows of 80%, 90% or even 100% below their highs. Investing your entire portfolio into high-risk, high-reward stocks that may just as easily lose all of their value as they may double is not so much of an investment strategy as it is gambling.

In an effort to generate long-term returns, it’s important to take acceptable risks that match your investment objectives. If your portfolio is too volatile for your risk tolerance, talk with a professional advisor who can help direct you to more appropriate investments.

A so-called “balanced” portfolio, consisting of 60% stocks and 40% bonds, was the standard investment prescription offered by advisors for many decades. But for many reasons, that static, traditional portfolio has fallen by the wayside.

For starters, this type of portfolio was promoted when bonds offered returns in the double digits, sometimes as high as 15% or more; nowadays, most investment-grade bonds pay a scant few percentage points. But perhaps more importantly, investing in general offers many more opportunities these days than it did 40 or 50 years ago. Diversifying options ranging from real estate and commodities to futures and even cryptocurrency can all play a role in a modern investor’s portfolio, and sticking to supposed “age-old wisdom” can actually do more harm than good these days. Talk with an advisor about the myriad of opportunities currently available in the investment markets to help you find a modern portfolio that’s more appropriate for your investment objectives and risk tolerance.

As you approach retirement age, you don’t have the luxury of time that younger investors have. If you put all of your money into the stock market at age 20, you can afford suffering through regular 10% corrections and still have a sizable nest egg by the time you retire. But if you’re 65 and you encounter a bear market, your portfolio value might drop by 25% right when you need that money to live.

Most financial advisors would suggest dropping the risk level of your portfolio as you near retirement, but remember this — you’re still likely to live 20 or more years in retirement, meaning you shouldn’t entirely abandon stocks. Speaking with a financial professional before you hit retirement age is a good way to help you balance your portfolio between growth and income, and between risk and reward.

Probably the best way to ensure that your portfolio doesn’t get off track is to dedicate yourself to reevaluating and rebalancing your asset allocation at least annually. Even if you don’t make any changes, putting yourself on an annual schedule is a way to stay in touch with the markets, check how your portfolio is performing and research new investment opportunities. This way, you can ensure that your investments are reacting to market cycles in the way you anticipated.

You can also take this opportunity to fine-tune your portfolio so that it offers the right blend of risk and reward for your own personal needs. Annual reviews like this are a great way to make sure your portfolio never needs a complete overhaul or gets too far out of whack with your long-term goals.

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