How to review your investment portfolioHow to review your investment portfolio

Let’s look at how to review your portfolio, and what to do if you find that your portfolio needs changing.

First things first: why review?

When you invest, particularly for the long term, it’s useful to have a strategy. This is a general framework of the types of things you’ll invest in, how you spread your money across different investments, how long you’ll invest for, the types of returns you expect, and the amount of risk you’re comfortable with.

Periodically reviewing your portfolio is one way to make sure that it’s still in line with that strategy, and that your strategy is still in line with your overall goals.

How to review: start with the strategy

The first component of a review is to check if your strategy is still the same. To do this, start by looking at your personal circumstances. Has anything changed since you started investing?

You may have bought a house (with a large mortgage to pay off!), had children, got a higher-paying job...the list goes on. These life changes can impact your goals, ability to take on risk, and time horizon (the length of time you plan to leave your money invested for).

If you now have children, some of your investments may be for their future—with a longer time horizon. Or you may need more money in your pocket each week to feed them.

If you’re investing to retire, are you still intending on retiring at the same age? If not, you may need to adjust your time horizon—which in turn, may impact the level of risk you can tolerate.

And speaking of risk, is your attitude towards risk still the same as it was when you first started your portfolio? Now that you’ve been through some of the ups and downs of the share market, how you feel towards risk may have changed—or it might be the same.

If there have been changes in these areas, your investment strategy—and therefore your portfolio—may need to change.

Now it’s time to look at your portfolio

Now you can look a bit deeper at the specific makeup of your portfolio—the actual investments you own. Consider this in the context of your overall strategy. Things to look for include:

Your returns. How did your investments perform both individually and overall as a portfolio? Did they perform the way you expected them to? Are those returns in line with your strategy?

Volatility. Did the value of your investments and portfolio fluctuate more or less than the share market? Is this what you expected? Are you comfortable with the level of volatility?

How is your portfolio spread across different investments? Has this changed over time? Is your portfolio allocated the way you want it to be? Are you diversified enough?

It’s basically a matter of comparing your portfolio to your strategy, and asking yourself if the two things line up.

Making changes to your portfolio

Once you’ve reviewed your portfolio, you may want to make some changes—either to reflect a new investment strategy, or get your portfolio back in line with your existing strategy.

You might also need to do some rebalancing. Rebalancing is when you buy and sell investments to get the weightings of the different investments in your portfolio back in line with your strategy. If you don’t do this, you can “drift” away from your strategy over time.

Here’s why: Let’s say you want a 70/30 split between shares and bonds. You invest $100 a week, with $70 going to shares, and $30 going to bonds. Let’s say that after a few years, your shares have given you really solid returns, while the value of your bond investments have stayed fairly flat.

Since the value of your investments have changed, it means that even though your initial contribution was split 70/30, the value of your portfolio is now more heavily weighted towards shares than what your strategy originally called for. If this no longer reflects your strategy, you might consider rebalancing your portfolio by selling some investments and buying others.

One thing to remember is that buying and selling investments may have tax implications and cost money in transaction fees. The changes you make should generally be made to align with your long-term investment strategy, rather than be for the short term.

How often should I review my portfolio?

It’s useful to schedule a review on a periodic basis if you’re investing for the long term. This could be once or twice a year—it’s totally up to you. It can be tempting to check in and change your portfolio more frequently, but it’s worth considering the impact that any associated costs in doing so might have on your returns.

Plus, if you’re investing for the long term, your financial goals (and whether your portfolio is set up to achieve these!) might play a bigger role in your investment decisions than the short-term ups and downs of the share market.

Finding a middle ground

In saying that, we get that some people might want to engage more often with their portfolios than just a couple of times a year! In reality, you can have the best of both worlds and have fun in the short-term while taking a longer-term approach.

Some people use a “core and satellite” investing approach. This is where you have a “core” part of your portfolio made up of long-term investments that take care of your financial goals—the “core” only gets reviewed occasionally.

Then you have a “satellite” of investments that you manage more actively, and that you use to try and achieve shorter-term returns. The “satellite” makes up a much smaller part of your portfolio than the “core”—they’re not the investments you're betting your future on!

Wrapping up

If you’re investing for the long term, it’s good to check in every now and again to see if you need to make changes to your overall investing strategy or portfolio. The process can be as light touch or as involved as you like—whatever works best for you and your goals!