Periodically updating your investment plan helps keep you on track to achieving your long-term goals
Investment planning goes on all year around. But, if you are like most investors you may not think about your investments on a regular basis. With all of the recent market volatility, I thought this would be a good time to talk about how to review and update your investment plan.
Typically, if you are working with an investment professional, you meet periodically to review your portfolio’s performance. However, you should also review your overall investment plan and strategy at least once per year.
Here are three key areas to review:
- Risk tolerance and asset allocation- Do you understand the amount of risk you are taking in your portfolio-and are you comfortable with it? You need to understand your risk tolerance and what makes sense based on your goals and time horizon. What is your mix of stock, bonds and cash? Having the appropriate asset allocation is one of the most important decisions you can make. According to research, 90% of portfolio performance comes from being properly allocated (stocks bond, and cash) and well diversified; only 10 % comes from the individual investment recommendations.
- Investment Policy Statement-An investment policy statement is a document that provides your general investment goals and objectives and describes the strategies that your investment professional should use to meet your objectives. Do you have an investment policy statement? If so, is it still current or does it need to be updated?
- Investment strategy-It is important to understand your overall investment strategy. Does your portfolio consist of quality investments that are well diversified? Or, are all of your eggs in one basket? Ideally, you want to be invested in a range of asset classes. This helps to reduce the overall volatility in your portfolio. What is your overall investment objective? Do you want growth in your portfolio or is your primary focus to protect what you have? When creating your investment strategy it is important to have a long-term perspective based on your goals and risk tolerance. You will be more likely to stick to a long-term strategy and not tempted to sell investments at the wrong time.
Whether you are working with an investment professional or managing your own investments, it is important to schedule a time to review and update your investment plan. This process is key to helping you stay on track to meeting your long-term investment goals.