Questions that can keep your investment portfolio performing


Although any decision about how to invest your money is important, the analysis shouldn’t stop once your money is invested. Here are some important questions to ask to ensure your portfolio keeps performing.

Investing is a process, not an event. One might even argue that your attentiveness should increase once you've invested - and not because you should feel compelled to make any changes, but because you have a vested interest in achieving the best possible performance.

Craig Gradidge, executive director at Gradidge Mahura Investments, says there are two simple questions one should ask:

  1. Have my investment objectives changed?
  2. How do the changes affect the structure of my portfolio?

These answers will guide you in making the necessary changes that will keep your portfolio performing in line with your investment objectives.

Most questions relating to your investments are valid and you should be asking them. However, one of the more common questions - arguably the most frequently asked - is not constructive: "What is my plan if markets drop?"

It's easy to fall into the trap of trying to time the market, which is impossible to do. Instead, time in the market is key.

The questions you should be asking almost always relate to context:

1. Do your investments still suit your investment time frame?

America's Financial Industry Regulatory Authority (FINRA) says, "For many people, the number one long-term goal is a financially secure retirement. But it's also a goal with a long time horizon. The general rule is that the more time you have to reach a financial goal, the more investment risk you can afford to take."

But the organisation adds that it's important to bear in mind that "No goal is short-, medium-, or long-term forever, and so the timetable for your financial goals will evolve over time. For instance, retirement will be a long-term goal when you're 35, but will probably be a short-term goal when you're 65." And a shifting investment time frame will affect how you should allocate your assets.

2. Do the products in your portfolio still meet your investment needs?

Different investment products have different terms, tax treatments and cost structures. It is important to understand the impact of the product on the ability of the underlying portfolio to meet your investment objectives. For example, a product geared towards a certain outcome – such as a retirement annuity – is difficult to compare to an open-ended unit trust (even if both rely on similar underlying investments). There are certainly term and tax differences.

Also be aware that any switching that will affect the investment outcome comes at a cost - which is why it’s so important to do your homework before investing your money.

3. Are you chasing past performance with your investment decisions?

This is an easy mistake to make and FINRA reiterates the often-quoted line that “past performance is no guarantee of future results.” However, Gradidge says investors would do well to select a fund based on “an established track record of the manager or the mandate,” as well as on risk-adjusted performance and cost considerations.

Risk-adjusted performance measures how much risk is being taken by a fund manager to produce a result. In other words, they might achieve great returns, but at an unreasonably high risk. Or they might net a slightly lower return at a much more tolerable amount of risk. This measure helps build a more accurate comparison.

“Historical returns consistently show that a well-diversified stock portfolio can be the most rewarding over the long term,” explains FINRA. “It's true that over shorter periods – say less than 10 years – investing heavily in stock can lead to portfolio volatility and even to losses. But when you have 15 years or more to meet your goals, you have a good chance of being able to ride out market downturns and watch short-term losses eventually be offset by future gains.”

4. How vulnerable is your portfolio of investments? And is your asset allocation still balanced? Do you need to rebalance?

Market performance will change the relative values of your asset classes over time. For instance, if your portfolio is structured to be 80% in equities and 20% in bonds and cash, and equities outperform strongly, you may find that your balance is now 90% to 10% (or possibly even more slanted).

“A risk assessment of your portfolio should be part of the review and rebalancing process,” says Gradidge. He adds that it is “important to understand what your asset allocation looks like to determine whether it is still suitable. If not, then rebalance.”

Performance aside, “the asset allocation you choose to help you meet your financial goals at an earlier time in life may no longer be the ideal allocation after you've been invested for some time, for instance as you approach retirement,” says FINRA.This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser.

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