How To Review Your Portfolio

How to review your portfolioIt’s a new year and if you have not done so, it might be appropriate to review your portfolio. One powerful concept, aside from compound growth, is to balance your portfolio. It’s also imperative that you understand your strategy and have confidence in it. Answer somes of the questions below to assess if your strategy is in need of a make over.

Portfolio Balancing

The concept is simple; you sell part of your winners and buy more of your losers based on your investing strategy. Your winners are your investments that appreciated and your losers are your investments that depreciated.

A regular portfolio rebalancing allows you to step back and make an adjustment without any emotions. It’s purely mathematical based on your allocation strategy. My defined contribution plan with my employer has an automatic quarterly rebalancing and I make use if it.

Here is an example, you might want to have the following hypothetical allocation in a dividend portfolio.

  • 30% Financial
  • 20% Energy
  • 10% REIT
  • 20% Telecoms
  • 20% Healthcare
Over the year, the Telecoms really crushed it and you are now at 25% and your other sectors have come down but the Financial sector was worse than the others. Based on your desired allocations you might want to sell a portion of your Telecoms to increase your position in the Financial. This process forces you to sell high and buy low. One caveat with stocks is that the trading cost alone may prohibit you from doing so or your portfolio is not large enough yet to rebalance.
I purposely picked the dividend examples since rebalancing with stocks isn’t that simple because your discount broker won’t allow you to trade partial shares and the trading cost can make it expensive. Nonetheless, it’s an exercice you should do. If you trade mutual funds, the process is much easier to match the target percentage you desire due to the ability to trade partial shares.

Cur Your Losses

If you are the patient type, or you don’t review your portfolio weekly or monthly, it’s also an opportunity to assess your losers (if any) and cut your losses. Usually, if you are in a taxable account, you’ll want to do that before the end of the year to maximize your tax efficiency, or plan for tax efficiency. Talk to an accountant if you need help with taxes.

Review Your Investment Strategy

It’s also a time to review your strategy and make the necessary adjustment. With all the ups and downs in the markets you may decide that it’s not for you to be in equity or that your allocation is simply to high in a sector.

Here are some questions to ask yourself:

  1. Are you satisfied with your return?
  2. Can you handle your portfolio risks?
  3. Are you on target for your retirement plan?
  4. Do you understand your investments?
  5. Do you understand the fees you are paying?
  6. Do you understand the impact of the fees you are paying?
  7. Do you have SMART goals? (Specific, Measurable, Achievable, Relevant and Timely)

If you answered ‘NO’ to some questions, it’s probably time you review your strategy. Best of luck with your portfolio.

Readers: How often do you review your portfolio? Do you rebalance?

Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

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4 Responses to "How To Review Your Portfolio"

  1. I have gotten completely hammered on PMT, but I still think there is a case to be made for the longer term. Otherwise I am mostly in index funds so it is pretty mechanical with asset rebalancing.

  2. I probably rebalance every couple of months, if you include new purchases.

    Equities climb a bit, I sprinkle in some bond ETFs in the RRSP only. Equities dip, I buy new dividend-payers, limp in with a small purchase sometimes, and keep other equities running synthetic DRIPs.

    I liked your 7 questions above. “NO’s” to a few of them are not a good sign for sure.

    Good post.

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  4. PIE Nice summary post. It’s always prudent to at least sit down once a year and reasses your portfolio, and your investing goals ;) I am doing that as well.In some ways I felt I was too diversified this year ;)

    For me I want to focus more on my Dividend Stocks, Bond Funds/ETFs with monthly distributions, and as you know start an aggressive DRIP plan. I also want to scale back my equity indexing in favour of dividend stocks (but don’t tell anybody).

    I really like the way My Own Advisor set up his DRIPS over a few years, and then transferred the holdings into his TFSA where he could synthetically DRIP from there. I’m also reasesssing if I will borrow for the RRSP this year or not ;) Lots of things to think about…

    Nice post!

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