Your investments, if left unchecked, can quickly get out of step with your original intentions for them, so they need to be reviewed regularly. But what does an investment review really entail? Let’s find out!
Yes, it’s crucial to review your investments regularly, by which I mean annually, or unless something comes up which might trigger an ad hoc review. This blog series is my step-by-step guide to how to review your investment portfolio each year to keep things on track.
Gather the Information
Before you can review anything, you need to have to hand all the information that you will need to refer to. Given that we are talking about your investment portfolio, you need up-to-date values of all your different parts including breakdowns of the constituent funds or shares or whatever.
Most of us have online logins these days from which we can download this information, or you can dig out the most recent paper statement that you have received. Don't try to complete this exercise with incomplete information. If anything is outstanding, do whatever you need to do to fill the gaps so that you can take a holistic look at your entire portfolio.
You may have a spreadsheet in which you keep track of your portfolio, or you may wish to create one if your mind works this way. I've known plenty of people who complete this process entirely on paper to this day – whatever works best for you.
Compare Values Against Plan – if You Have One
A wise man once said: Benchmarks are bunk. That wise man was me! I’ll explain.
If we are reviewing the performance of our portfolios we need something to compare it with. What might that be? Should it be some arbitrary index? Or maybe just an inflation plus X% figure? Or maybe you just want to do better than your mate Alan down the pub!
Obviously it's up to you, but these are all irrelevant figures. What really matters is whether you are making enough money – on average over the long term – to meet your planned goals. Of course, this presupposes that you have a financial plan in place! We have talked about planning in depth in previous episodes of the show, specifically in season 15.
In Meaningful Academy, members get access to a phenomenal planning app called Voyant Go, which allows them to set different estimated growth rates on their investments and pensions. This then serves as the benchmark growth rate that they’re looking for with their investing.
For instance, they might say, “I’m going to set a 5% assumed growth rate on all my investments. What does that look like? Does the plan stack up off the back of that?” If it does, then very often we’ll use that for their real-life investing benchmark.
Failing that, I think you can use simple growth rates depending on your general attitude to risk and investment approach. A balanced investor, for example, might set a target growth rate of 5% per year. A more cautious investor would assume less than that, and a more adventurous investor might assume a higher target growth rate.
You decide what this needs to be, but anything is better than trying to beat an arbitrary alternative which bears no relation to your personal goals. When you sit down with your information to hand, compare values against plan, versus where you were last year.
Have you made more or less than what you would want to achieve? Of course, you also need to look for trends over a longer period of time, not just on a one-year basis.
Assess Portfolio Performance First
The first thing you need to look at is how your portfolio as a whole has performed. So, anything which is invested, that is, your pensions and investments but not your savings accounts – how has this combined pot of money performed?
I think it is especially important to consider a whole-portfolio approach when you are just getting started on with investing. At that point it is really too early to be drawing conclusions about the performance of the constituent parts.
This shouldn't take too long at all. Compare the value of your portfolio this year with its value last year. Take into account anything you have paid in over the year so that you are purely looking at the performance (usually expressed as a percentage). Is this more or less than your personal benchmark?
As you get used to investing and the decidedly non-linear way that markets and investments work, you will find it easier to be pragmatic about things, especially when your portfolio has UNDER-performed.
If you are a new investor, spend the first three years keeping an eye on things generally and continuing your financial education. Read continually. Learn about markets and keep an eye on what is going on in the world and how your portfolio is reacting to it.
If you are a more experienced investor then the overall view is merely a starting point for your review. From here we can dig into the detail.
