Investment Portfolio Review – How, Why & When?

As an investor, you might have often put in a lot of effort to build an investment portfolio. But have you considered reviewing it at periodic intervals? This step is vital when designing and implementing a strict portfolio strategy. You must adhere to a regular review schedule.

In order to save money and invest it profitably, you must analyse your plan periodically. Only then, you can know about the hidden opportunities for improvement, in order to reap greater financial rewards.

What is an investment portfolio review?

Investment portfolio review comprises breaking down and analyzing your investment portfolio with an aim to better investor’s needs, preferences. It helps one to increase the probability of him meeting his set goals. It also enables one to meet the objectives of a given investment mandate, by shedding light on historical asset class performance, inflation and other related factors.

Why is an investment portfolio review necessary?

Let us help answer this question by citing an example. For example, you need to approach an investment advisor or asset management company and request them to give you a detailed portfolio analysis. The professional will first check the holdings included in the portfolio. He shall also analyze if such holdings include assets that have a high possibility of maintaining low volatility, price fluctuations, and enough liquidity to covert the assets cash when required. He will calculate the amount of investment income in the form of dividends or interest. This expert will then tell you about measures to take so that your capital does not undergo any losses.

How to perform an investment portfolio analysis?

You need to examine your investment portfolio on an aggregate basis while comparing its status to other benchmark portfolios. Some of the elements that you must consider are the total number of portfolio components, the price-to-earnings ratio, the dividend yield, and the estimated growth rate. This is then tallied against a stock market index.

The next step is to weigh the elements in relation to each other. You should understand how these different components affect each asset individually. It should cover all related ventures such as investments in a small business or real estate spends. Lastly, analyze all the portfolio components as stand-alone investments. Understand why you own a certain element, what are your after-tax cash flows, and should you continue holding your stake.

Once you have conducted all these steps, your investment portfolio review is complete. It is an important risk management tool, wherein you know which asset to buy, which asset to keep, and how to increase your financial wealth.

When should you do an investment portfolio review?

An investment portfolio review should be done when you wish to add value to your financial plan. Usually conducted on an annual basis, this activity can be carried out at the end of the financial year before you file for your taxes. It helps you to analyze the transaction costs involved, along with taxes and setting the allocation tolerance bands.

While going for asset allocation strategies, you can go for either long-term or tactical methods — which are implemented at regular intervals. At the start of a financial year, you get better visibility of your revised cash flows, tax-rule, and regulatory, changes. Hence, this is the perfect time to review your investment portfolio.

Conclusion

During your review, here are some results to look out for. Suppose you observe a trend of poor performance over the last couple of years, you should know that it is time to take a different approach. Again, analyze stocks or bonds that have been reasons for such bad performance.
Lastly, whatever step you take, do not allow emotions to affect your decisions. Create an investment policy statement with guidelines that you are sure you shall follow in the long run. Only then, your entire exercise will be worthwhile.

Wondering about your investment portfolio review?? Want to know more about reviewing your portfolio. Feel free to write us on contact@sbsfin.com