The Perks of a Portfolio Review

Financial Planning

Review Your Portfolio in 3 Easy Steps

The New Year is the perfect time to make sure your investments are on the right track.

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In a long-running bull market, investors can be forgiven for a tendency to “set it and forget it” when it comes to their portfolio. But good investing hygiene demands regular checkups and some doctoring here and there—call it preventive medicine for your financial future. To make the process easy, we’ve boiled it down to three simple steps.

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Step 1: Review your asset mix.

Whether you’re choosing from a menu in a workplace plan or investing on your own, you should establish a mix of stocks and bonds that’s appropriate for your age and tolerance for risk. Your asset-allocation plan will change over time. People in their twenties should hold 100% in stocks, while holding 50% in stocks, 46% in bonds and the rest in cash may be more suitable for a retiree. In Investing at Every Age, we offer guidelines for five stages of life.

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If you already have a plan, ask yourself some questions to see whether it still fits your life situation. Is your job less secure? Did you start a family? Did you win the lottery (or inherit some money)? You may need to adjust your asset mix if your circumstances have changed. And keep in mind the trade-offs: Owning more high-quality bonds could help stabilize your portfolio in a market downturn, for example, but that would come at the price of long-term growth.

Step 2: Rebalance your port­folio.

The market’s ascent over the past year may have thrown your investment mix out of alignment. Instead of holding 65% in stocks, you may now have 75% or more as your port­folio has swollen in size.


Many advisers recommend rebalancing if your asset mix has drifted by at least five percentage points, tilting too heavily toward stocks or bonds. (You can apply your rebalancing strategy to your mix of domestic versus international holdings or to sectors and industries, too.) If you save regularly, you can also rebalance by investing new cash in the underrepresented asset class until you get back to your target mix.

Selling some of your favorite stocks (or stock funds) and buying more bonds (or bond funds) may now be necessary. It isn’t easy to sell stocks in a strong bull market. But you’ll be glad you remained disciplined if stocks start to fall while high-grade bonds hold up, helping your portfolio stay upright.

Remember to rebalance your entire portfolio, including workplace accounts. “Look at your overall allo­cation, not just one account alone,” says Gary Schatsky, a certified financial planner in New York City.

Step 3: Give your investments a pass-fail grade.

Maybe you have a soft spot for that funky mutual fund your uncle recommended years ago. But is it really a winner? Find out by comparing it with an appropriate benchmark—such as Standard & Poor’s 500-stock index, for a diversified stock fund—as well as similar funds.


It’s unrealistic to expect actively managed funds to beat their bogeys every year. But bad performance over three or four consecutive years may be a sign that it’s time to move on. Be ruthless when evaluating stocks or bonds that have been poor performers, too, but also bear in mind that there will be tax ramifications for selling assets held outside a retirement account.

Finally, don’t let emotions muddle your decisions. Draw up an “investment policy statement” with guidelines you agree to follow for buying and selling securities. “When markets get crazy, having a policy can stop you from making emotional decisions you may regret,” says Amy Irvine, a certified financial planner in Corning, N.Y.