Investors have been through a lot of ups and downs over the past several years with the pandemic, interest rate moves by the Fed, recent bank failures and a host of other market and economic factors. A periodic review of your portfolio is always a good idea, perhaps even more so in our current environment. Mid-year is a good milestone to review your portfolio and your financial situation.
This review should include:
- A review of your portfolio in terms of assessing how it is configured in terms of your overall financial goals.
- A review of your spending and savings needs to consider an adjustment of your portfolio in line with any changes if needed.
- A review of your financial goals and priorities, an evaluation of your tax exposure and an assurance that your investment portfolio is aligned with your time frame and risk tolerance to meet those goals.
- An assessment of where you stand relative to financial goals like saving for college or retirement and make adjustments as needed.
Assessing Your Investment Goals
Your mid-year portfolio review is a good time to review your overall financial goals and to determine if you are on track towards achieving them within the timeframe you have set. If the markets have been doing well, perhaps you are ahead of where you thought you would be at this point.
Depending upon where you are relative towards achieving your goals, this may dictate a change in your strategy. If you are ahead of the curve, perhaps you will want to reduce your investment risk. If you are behind, you may want to take a bit more risk and perhaps save more each year if you can.
You will also want to assess your goals in light of any life changes. These can include things like having received a raise or promotion, the fact that you are another year older or a host of others.
A mid-year portfolio review is an appropriate time to review your portfolio’s performance relative to its blended benchmark. If you have outperformed the benchmark, that is great. If your portfolio has underperformed, you should assess why this occurred. Is this the result of the underperformance of one or two holdings, or is it based on widespread underperformance?
If you determine that certain holdings have underperformed, you will need to assess whether this underperformance is a one-time thing or if these holdings are likely to be a permanent drag on the performance of the portfolio. If it is the latter, it might be time to make some adjustments to your holdings.
Based on your progress towards your goals and your performance review, you will want to assess if your asset allocation is still appropriate for you.
Do you need to adjust to be more or less aggressive? Have changes in market conditions had an impact on your strategy? For example, do you need to adjust your asset allocation based on recent increases in interest rates?
While taxes should not be your primary consideration in developing an investment strategy, your tax situation is still a factor to consider. Will any of the recent tax law changes impact your investments? One issue there might be asset location. Certain investments might do better for you in a tax-deferred account like an IRA from a tax standpoint. This might be a consideration in the rebalancing process.
Rebalancing Your Portfolio
A key element in your mid-year portfolio review should be a review of your overall asset allocation. This includes all accounts: taxable investment accounts, IRAs, workplace retirement accounts like 401(k)s and others. Ideally, you have set parameters in terms of the variation from your target allocation that would trigger rebalancing.
You will also want to consider any changes in market conditions, your goals and your personal situation as part of the rebalancing process.
When rebalancing, you should consider opportunities for tax-loss harvesting in taxable accounts. Also take into account any new money that you will be adding to any accounts and use these new funds to shore up asset classes that you are under allocated to.
A portfolio review should be conducted on a regular basis. At least annually or semi-annually is generally recommended, in some cases quarterly might be appropriate as well.
Each review should entail an assessment of whether your investment strategy is still appropriate in light of any changes in your situation, or in market conditions. A review to determine if any rebalancing is needed should be conducted as well.
While we do not suggest looking at your portfolio on a frequent basis, we do strongly suggest a comprehensive review on a regular, periodic basis. Contact your Wedbush financial advisor to schedule a mid-year portfolio review to help ensure that your investment strategy is on track.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns.
Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor.