KEEPING YOUR INVESTMENT PORTFOLIO IN BALANCE

While it’s human nature to want to “leave well enough alone,” this may not be the best approach when it comes to your investments. You should review your portfolio from time to time to make sure that it still attuned to current market conditions and reflects your investment goals.

While there are many reasons why your portfolio mix may no longer match your goals, here are three of the most common.

Investment Results
Over time, your investments may change in value enough to alter the overall balance of your portfolio. For example, say the stock market has a strong rally and the value of your stock mutual funds increase 20%. These funds would now represent a much larger portion of your portfolio than you originally planned, resulting in a portfolio that is probably now more aggressive than you intended. In such a case, it might be a good time to consider transferring some of your money from stock funds to bond or money market funds in order to restore the investment allocation that you had determined was right for you.

Your Financial Situation
As you encounter major changes in your life, you may want to reexamine your investment strategy. For example, if you have a child that will be starting college in a year or two or if you are changing careers or going back to school, you may want to move some of your growth-oriented investments into more conservative instruments that will provide more short-term liquidity. Be careful not to “over-adjust,” however, since building too much liquidity into your portfolio can adversely impact your return potential. Freeing up funds for a tuition deposit or debt consolidation should require a significantly less dramatic portfolio restructuring than covering virtually all of your living expenses until a new business is up and running.

A Major Milestone
Major events in your life, such as marriage or retirement, also bring about financial changes that require adjustments in your investment strategy. If, for example, you are about to retire, you may want to convert some of your growth stocks into income producing bonds. Bear in mind, however, that many older investors find it useful to maintain a small growth component in their portfolio in order to try to combat the effects of inflation on their purchasing power.

How Often Should You Review Your Portfolio?
While an annual review is probably sufficient for most investors, those with a very large or very aggressively-oriented portfolio might consider monitoring their portfolios more frequently.

If you consider rebalancing or reallocating your investments, be sure to evaluate the costs as well as the benefits of doing so. There may be tax consequences or special charges that could affect your returns. In short, you need to review the whole picture before making a decision.