Reviewing your investments regularly is crucial to ensuring they align with your financial goals and market conditions. As an Irish personal investor, changes in the economy, interest rates, and tax regulations can impact your portfolio. Regular reviews help identify underperforming assets, rebalance your investments, and take advantage of new opportunities. It also ensures your risk level matches your evolving needs, whether you’re saving for retirement or a major purchase. Ignoring your portfolio could mean missed growth or unnecessary losses.
How often should you review your investments?
Ideally, you need to review your portfolio and see how your investments are performing every six months or every year. Investors generally rely on annual portfolio reviews simply because it’s easier to stick to an annual schedule. And for some investments – particularly the long-term ones – checking in every six months may not be practical.
So, for all intents and purposes, an annual investment portfolio review seems to be the best course of action. But to get into the finer details, what exactly should you be reviewing? And how do you go about doing that? Our step-by-step guide on this can help you with the answers you’re looking for.
Having a plan of action can make it easier for you to review your investment portfolio efficiently. Typically, your investment review comes with three key objectives attached.
1. To maximise returns
2. To minimise costs and risks
3. To achieve your life goals
Step 1: Review your life goals
Your investments have one main purpose – to help you achieve your life goals. Review the goals that you have accomplished and add new ones to your list if you need to. This gives your investments a sense of purpose.
For instance, last year, you may have added a new goal – to visit your daughter in Australia. Now, 12 months later, you may have checked off that goal. Instead, you may have other things to add, like saving up for a new car, or increasing the amount you invest in your pension.
Step 2: Review your risk appetite
Your investments also need to be in tune with your risk profile. If you are younger and open to taking on a higher degree of risk, it makes little sense if you restrict your investments to debt instruments alone. Conversely, if you are a more conservative investor, your ideal portfolio may not have a very large exposure to equity or other market-linked investments.
Similarly, risk appetites may also change with time.
Step 3: Review your asset allocation
Asset allocation refers to the way your capital is distributed across – or allocated to – different asset classes. Over the course of one year, the original asset allocation you had in place will certainly vary, because the value of your investments could increase or decrease.
Keep in mind that the original asset allocation will remain valid only if your risk appetite remains the same. In case your risk appetite changes, you will need to adopt an asset allocation that is more in tune with your new risk tolerance.
Step 4: Review the level of diversification
Asset allocation is important. And so is portfolio diversification. You may have allocated your capital optimally, but if your portfolio only includes a couple of investments, it is not adequately diversified. If those investments do not perform well, you could risk losing most or all your capital. So, it’s important to spread your investments across various assets and asset classes.
However, take care not to diversify too much, because that would just dilute your gains. The trick is to diversify smartly.
Step 5: Review the tax implication, fees and charges
Some investments also come with additional fees and charges. Others may have introduced new fees in the period since your last investment review. Also, some new investments that are more cost-effective may have been introduced in the interim. If these schemes or assets can help you meet the same goals as costlier options, you could consider investing in the former category, since your overall returns will be maximised.
Also remember, your investments also need to be tax efficient.
Last words
Now that you know how to perform your yearly investment review, you only need to pick a date and stick to the schedule. It’s best if you set a reminder each year, so you can perform your review without fail, like clockwork. And in case you are unsure of what changes you need to make in your portfolio, if at all, you could always seek professional help with a Financial Advisor.
By staying informed and reviewing your portfolio, you can adjust your investments to navigate economic shifts effectively. Stay proactive—reviewing your investments keeps you in control and maximizes your financial potential in an ever-changing market.