Monitoring and reviewing your portfolio

A common mistake made by investors is spending hours building their portfolios, but then choose to effectively ignore them.

This can be a potentially fatal error. Not keeping a close eye on your chosen funds may have disastrous consequences for your longer-term financial health.

Just like you’d nurture a growing child or a beautifully landscaped garden, you’ll need to monitor and review your investments.

But how often should you do so and what do you need to look out for? Here, we take a look at why monitoring your portfolio must be a priority, the dangers of failing to heed this advice, and how to change your portfolio for the better.

Why should you monitor your investment portfolio?

It’s always a good idea to periodically review our investments and make sure your portfolio is meeting your overall objectives.

As well as reminding you of what you own and where you’re invested, carrying out a regular portfolio review allows you to assess the performance of your chosen funds.

Has the value of your investment increased or fallen? How has the fund performed in comparison to its peers? What are the reasons behind the returns? How much money have you made or lost?

What was a perfectly diversified portfolio a year ago may now need some tweaking. Simply by failing to address imbalances that may occur naturally after significant price gains or falls, you could be introducing more risk into your portfolio than that with which you’re truly comfortable.

As well as scheduled reviews, you should also re-examine your portfolio positioning in light of major events – those happening in the world in general, but also those happening in your own personal life. Has your financial position changed? Has your attitude to risk altered?

What steps can you take?

When you review your portfolio it’s a good idea to take a step back and re-familiarise yourself with your investment goals. What are they, and have they changed?

You may also like to think about your attitude to risk. Is it still the same or has that, too, changed?

With points one and two in mind, find out how your fund – or funds – have performed. This information can be established through your chosen investment platform.

You’ll be able to see whether the overall value of your investment has risen or fallen over different time periods. Whatever has happened, you’ll need to scrutinise the results carefully.

What has contributed to the returns achieved? Has the fund risen almost by default because stock markets have gone up or has the manager succeeded when his rivals have failed?

Investment houses usually publish monthly and quarterly updates on their funds, outlining their current positioning and factors that have influenced their performance.

They will also provide a forward-looking assessment of how they see markets and what impact this is likely to have – either positively or negatively – on their portfolios.

Then look at the asset allocation and geographical spread of your portfolio. Does it look about right, or do you think you need to adjust it? As such exposure can change over time, monitoring where your fund is invested means you can ensure the spread of assets is still suitable.

Rebalance your portfolio if you think necessary and fill any gaps you have discovered.

How often should you review your investment portfolio?

A detailed review should be carried out at least once-a-year, although revisiting your choices every few months is advisable as it enables you to spot potential problems early.

The aim of the annual analysis is to look at how your various investments have performed, whether returns were as expected, and if the portfolio is still meeting your needs.

Revisiting your fund choices on an ad-hoc basis, in response to global events such as a war, the portfolio manager leaving, or the sale of an investment house, also makes sense.

In addition, changes to your circumstances and goals should prompt a review to see how they are likely to affect your investment needs over the coming years.

For example, if you are now expecting a child, you may want to divvy up your holdings in a different way. Similarly, if you’re earning more money, you could want to diversify your positions or increase regular investments.

The dangers of not monitoring: what can go wrong?

The most obvious is that you’re stuck in poorly performing funds and the value of your investment is falling dramatically – without you even noticing!

Similarly, if your life goals have changed and you haven’t checked in with your investments, you may find yourself financially unprepared over the next few years.

So, why not make the most of the here and now and take a look at your portfolio?

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.