Just as regular health check-ups are vital for maintaining physical well-being, periodic portfolio reviews are essential for financial health. They help you track the performance of your investments and ensure they align with your financial goals. Market volatility is common, but selling investments impulsively is not advisable; regular review and adjustment make more sense. Sometimes we invest in assets that underperform, and if we do not review and adjust on time, it can negatively impact the overall portfolio.
In this article, let us understand why periodic portfolio reviews are important and explore tips to avoid common mistakes while conducting them.
What is a Periodic Portfolio Check-up?
A Periodic Portfolio Check-up is a scheduled review of your investments to assess their performance, risk, and alignment with your financial goals. The frequency of these check-ups depends on the type of assets and may require annual, half-yearly, quarterly, or sometimes even monthly reviews. Regular check-ups help ensure your investments stay on track without overreacting to short-term market fluctuations.
Why Periodic Portfolio Check-ups Matter
Align with Changing Life Goals: Your financial goals evolve due to events like marriage, buying a home, or planning for retirement. Regular portfolio reviews help you realign your investments to match your current goals and risk appetite.
Manage Underperforming Assets: Some investments may not perform as expected. Regular reviews help you identify and replace underperforming assets early, allowing you to reinvest in better-performing or more promising opportunities.
Respond to Market Changes: Markets move every day and are never constant. A periodic review allows you to adjust your portfolio, reduce exposure when market conditions are weak, and seize opportunities when they arise.
Diversification: As some investments grow faster than others, your portfolio balance can shift. Regular check-ups help you rebalance your holdings, maintain proper diversification, and prevent excessive risk build-up.
Stay Prepared for Future Goals: A well-reviewed portfolio keeps you financially ready for future needs like children’s education, a new home, or retirement. It ensures that your investments continue to work toward your long-term plans.
Improve Tax Efficiency: Capital gains and dividends can affect your returns. Reviewing your portfolio regularly helps you plan smartly for taxes and adopt strategies that maximise your after-tax profits.
How Often to Conduct a Portfolio Review
Investors should conduct a portfolio review based on the type of assets they hold. Here are the recommended frequencies:
Annual Reviews: Optimal for most long-term investors, focusing on asset allocation, performance, and alignment with financial goals.
Semi-annual or Quarterly Reviews: Useful for tracking changes in market conditions, strategy, or risk exposure, especially for short-term investors or during high market volatility.
Monthly Reviews: Reserved for traders or those with particularly complex portfolios, but this can lead to unnecessary stress and higher trading costs.
Steps for a Portfolio Review
Gather and Organise Holdings: Start by listing all investments, such as equities, mutual funds, bonds, fixed deposits, insurance, retirement accounts, and alternative assets in one place for a unified view.
Clarify Financial Goals: Revisit financial objectives, including timeframes, required returns, risk tolerance, and any changes due to life events or revised priorities.
Assess Asset Allocation: Compare current allocation to your target, considering proportions of equity, debt, gold, and other assets. Adjust for deviations caused by market changes or performance shifts.
Evaluate Against Benchmarks: Measure returns for each holding and the portfolio as a whole. Benchmark against indices or peer performance, accounting for current market conditions.
Diversification and Overlaps: Analyse sector, geographic, and style diversification. Identify excessive overlap between funds or stocks to avoid concentration risk.
Analyse Costs and Tax Impact: Review expense ratios, transaction charges, and tax efficiency. Ensure costs do not erode returns and consider tax-loss harvesting if relevant.
Rebalance as Needed: If asset allocation is skewed or goals have shifted, rebalance by selling overweight assets and reallocating to maintain the strategy.
Document Findings and Action Points: Record all evaluation results and clearly note any actions required, such as rebalancing, selling, or new investments, to create accountability for follow-through.
Common Mistakes to Avoid While Portfolio Review
Panic Selling: Selling investments out of fear during market dips locks in losses and prevents you from benefiting from price recoveries.
Confirmation Bias: Focusing only on positive news about your investments while ignoring warning signs can hinder balanced decisions.
Anchoring Bias: Getting stuck on your buying price or past highs can make it difficult to judge investments based on their real current worth.
Wrong Benchmarks: Comparing your portfolio to the wrong index or standard can give a false impression of performance. Select proper benchmarks that match your investment type and market.
Overconfidence: Thinking you know more than the market can lead to excessive trading or ignoring professional advice, increasing the risk of losses.
Skipping Regular Reviews: Not reviewing your portfolio often enough can cause investments to drift away from your goals and risk comfort level.
Lack of Diversification: Concentrating too much in a single stock or sector increases risk, while spreading too thin can dilute returns.
Timing the Market: Guessing when to buy or sell usually leads to mistakes, as most people end up buying high and selling low.
Ignoring Costs and Fees: High charges, including management fees, taxes, and transaction costs, can quietly reduce returns if not monitored.
Wrapping Up
Regular portfolio check-ups are key to keeping your investments healthy and aligned with your goals. They help you stay prepared for market changes, manage risks wisely, and make informed decisions rather than emotional ones. By reviewing your portfolio periodically and avoiding common mistakes, you can build a more balanced, resilient, and rewarding investment journey.
Consistent reviews ensure your money works effectively not only for your current needs but also for future goals. Start small, stay disciplined, and let time and strategy strengthen your portfolio year after year.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
