Quarterly Portfolio Review

The end of a quarter is a good time to review your investments, decide if they are perfoming as you think they should, and make any adjustments you consider necessary.  The thing to remember is that you need to have a plan, you need to remember that markets go up and down, and that you need to make rational decisions, not emotional ones.  Here are some factors to consider:

How Is Your Asset Allocation?

You need to determine what asset allocation is appropriate for you at this stage of your life.  If you aren't sure what that allocation should be, take a look at at the target date funds by Vanguard, Fidelity, or your favorite fund family.  Pick the one closest to your projected retirement year and then look at its composition.  Target date funds are usually superfunds made of other mutual funds, which give you an added layer of fees.  If you are able to spend a few minutes 2-4 times a year reviewing your portfolio, create your own target date fund and just rebalance it yourself.  If the stock market has gone up a lot so that you are way overweighted in stock funds, sell some and buy bonds or whatever other asset you need to round out your allocation and bring it back in line with your goals.

We will be selling some funds to get our asset allocation back into balance.  The stock market has been good to use this quarter.

Has There Been a Substantial Change to an Investment?

You are keeping up with your investments in the financial press and blogs, aren't you?  Has something changed with an investment that could cause it not to be useful to you anymore?  For example, marketplace lender Prosper has just announced that it is shutting down the secondary market for its notes.  If you were counting on being able to use the secondary market to liquidate your account if necessary, now is the time to get out.  Has your actively managed mutual fund just lost its long-term manager?  Did your rental house just flood?  When something big about an asset changes, investors need to consider whether they still want or need the investment.

Since we have other liquid assets, Prosper's change is not a great concern to me; however, it will make me think twice before adding more money to my Prosper account. 

How Are Your Assets Performing?

The general rule is that you own stocks for growth and bonds for income. Generally speaking, as the market goes, so do most stocks.  Different sectors of the market do well at different times and if we could predict which ones would do best in a certain time period, we'd be rich,  Still, the performance of most mutual funds can be compared to one index or another.  If the stock market is up, and your fund is down, do you know why?  Compare your funds to other funds that purport to do the same thing.  How are yours doing? It may be time to get out of one fund and into a similar one.  You are more likely to get burned than to make money constantly shifting from one hot fund to the next but don't stay with poorly performing funds out of inertia.  The research now shows that very few fund managers manage to beat the indexes long term; a low-cost index fund is the best bet for most poeple. 

We still  have a large number of mutual funds which were purchased for us by our ex-financial advisor.  There is a $20 per fund charge to sell the shares, and in general we have the same funds in three different accounts so we haven't been in a hurry to sell them.  We keep an eye on them and as long as they are perfoming close to their benchmark, we leave them alone. However we had four funds that were underpeforming their bencharks and the market as a whole by 5-10%.  We dumped them and will re-invest the proceeds in Vanguard index funds.  

What Are Your Plans for the Near Future?

Are you going to need money for a car?  Does college tuition start next  year?  Is retirement almost here?  Do you need to get more liquid?  Do you need more income?  Should you put money in taxable accounts or in retirement accounts?  

We'll finish with college tuition at Christmas, but high school tuition will start in June.  We just bought two new (to us) cars so we should be set there for a while.  We have mutual funds in a taxable account, but it doesn't look like we are going to need the money any time soon.  Unfortunately, with all the expenses this year, we haven't been able to fund our Roth IRA's.  However, we've decided to move some of that taxable money into our Roth's.  The rules on Roth IRAs will allow us to withdraw that money if necessary, but if not, it grows tax-free and that's a good thing.  

Smart investors make a plan, change it if necessary after logical reflection and then periodically determine if they are on the best path.  When is the last time you reviewed your investment portfolio?