Successful investing is about finding a balance between consistency and agility. You probably selected your investment strategy based on factors like personal goals, time until retirement and the economic climate. But when should you make adjustments.
Financial experts generally advise sticking to your strategy and not reacting to every movement in the market, but you should still keep regular tabs on how your assets are performing.
Here are a few things to keep in mind when it comes to monitoring your investments.
A change to your budget
Richard Barrington, Senior Financial Analyst for MoneyRates.com and a contributor to GetRichSlowly.org, advises reevaluating your portfolio anytime you pay off a major debt (such as a student loan) or earn a raise.
You’ve budgeted your lifestyle with a certain amount of money. So when you find yourself with an additional chunk of change each month, instead of treating it as extra discretionary income, Barrington recommends investing that money into savings accounts or funds that will more meaningfully benefit you in the future.
“Whatever expenses you were able to meet beforehand, you now have a little extra,” Barrington says. “And using those funds to go toward your future is a very positive thing.”
Major market shifts
Broader economic events can also spark financial changes. It’s the nature of the stock market to move up or down by a small percentage each month, but larger movements of 10 or 20 percent — especially to the downside — warrant a closer look at your investments.
When evaluating potential portfolio changes, try to avoid becoming emotionally involved with your investments. “Sometimes people are so determined to be right that they’re hesitant to admit their [stock] isn’t doing well and cut the cord,” Barrington says.
“The mid-career investor should recognize the fundamental unpredictability of the investment process,” says Jonathan DeYoe, president of DeYoe Wealth Management and writer of the Happiness Dividend Blog. He recommends diversifying your portfolio as much as possible to avoid falling prey to those unexpected specific company or single market shifts. “Buy the whole haystack, not the needle,” he says.
Learning from the past is flawed
It may seem logical to invest your money the way you’ve seen work for others in the past, but as the world changes, that may not always be the best decision.
For instance, people are living longer lives. Maybe your grandfather’s retirement savings plan worked for him, but the odds are you’re going to live longer than he did, so you have more years of retirement to fund. “Because we are living longer, our plans must be different,” DeYoe says. “So we should question even rules of thumb.”
Similarly, interest rates have been near historic lows. So you’re not going to achieve the same growth that someone saving the same amount of money might have 50 years ago. Be conservative with your projections, and prepare for the unexpected.
No matter what, review your portfolio every year
It’s easy to remember to evaluate your finances when big events happen, but don’t forget to take a look at your finances even when circumstances don’t change. Analyze your market investments through a forward-looking lens. Assets shift around as stocks and bonds appreciate at different rates, so you may wind up being more heavily invested in one asset class or sector.
“Think about what might happen [in the coming years] and what your response might be,” DeYoe says. “This isn’t necessarily a plan change—it’s preparation for the potential unknowns.”
Even events that aren’t dramatic “can add up to significant shifts in your portfolio allocations,” Barrington says. “You can stay on top of them by monitoring and revisiting your financial program at least once a year."