Reviewing your investment portfolio

Our investment goals and attitude to risk will change over time as we reach different stages in our lives.

Leaving your portfolio unchecked for too long is a lot like ignoring the check engine light in your car – you’re leaving the outcome to chance. If you want your portfolio to stay on track, like most things, you’ll need to make sure it’s serviced regularly.

We look at what you need to think about when it comes to reviewing your portfolio.

This article gives you information about how to review your portfolio, but it’s not personal advice. If you’re not sure what’s right for you, ask for financial advice.

How often should I review my portfolio?

Once you’ve built your portfolio, it’s important to check in on your investments from time-to-time to make sure they’re still right for you. There’s no hard-and-fast rule on how often you need to review your portfolio, but we think twice a year is sensible – once a year at the very least.

You should also check in when your circumstances or investment objectives change, or if there have been some big changes in the markets.

Reviewing your account once or twice a year should strike the right balance between taking control of your finances and it not becoming a burden or getting in the way of life. Making too many changes to your investments and the possible costs of trading can eat into your returns over the long run.

How to review

Take a six-step approach to reviewing your portfolio:

1. Have your reasons for investing, your circumstances, or your objectives changed?
2. Has your attitude to risk changed?
3. Look at why your investments might’ve performed differently
4. Does your portfolio need rebalancing?
5. Check the costs of your investments
6. Have tax rules or allowances changed?

Essentials to reviewing your portfolio

Let’s take a look at each step in more detail.

Step 1 - have your reasons for investing, your circumstances, or your objectives changed?

It’s often the case that something happens in your life and you don’t instantly think to reflect that change in your investment portfolio. That’s why it’s important to make it part of your regular review.

A change of circumstances that impacts your investment objectives usually falls into one of two camps – those that are expected, and those that aren’t, but can still be partially planned for.

The above list is subjective and may differ from person to person depending on their circumstances and views.

If there have been any expected or unexpected changes since your last review, then you’ll need to think about how that changes the way you need to invest.

Whatever changes you choose to make with your investments, it’s essential to stick to your long-term plan and avoid making investment decisions based on short-term market movements.

Step 2 - has your attitude to risk changed?

It’s important to review your attitude to risk regularly. That’s not because it should change depending on the direction of the stock market, but because the level of risk you’re comfortable with could change over time.

As you get within touching distance of your long-term goals, like retirement or buying your first house, it’s normal to get more nervous about your investments falling in value suddenly. If this resonates with you, it could be a good time to check you’re still invested in a way that matches your goals.

Step 3 - look at why your investments might’ve performed differently

Make sure you look at the performance of each investment when you review your portfolio. Not only does this help you understand your own portfolio, but it also helps you to better understand how different stock markets and sectors are performing.

Remember, investors aren’t worried about what happens to the share or bond price today or tomorrow. We invest for the long term – that’s at least five years.

When you invest in funds, it makes sense to check the performance against its benchmark or sector they invest in. This will allow you to compare the fund’s performance against the wider stock market. Remember, there are two types of funds. Actively-managed funds aim to outperform the benchmark they’re measured against whereas index tracker funds aim to track a particular index or stock market.

Step 4 - does your portfolio need rebalancing?

Rebalancing is about restoring the original weightings of the investments in your portfolio. It helps make sure you’re matching the level of diversity and risk you planned on when you started out.

Suppose you decided to make your portfolio 50% shares and 50% bonds – we’re not suggesting this is a good mix, it just keeps things easy for this example.

If shares happened to grow at a faster rate than bonds, your portfolio weighting in shares would go above 50%, making your portfolio more risky.

You can rebalance by adding any top ups or re-directing any regular saving instructions to areas which have become underweight.

Another way is to sell a portion from your investments that have done well, to top up investments that have performed poorly. It might sound counterproductive, but top performers usually come in waves and it will help bring the portfolio back into kilter.

You can see how and where your money is invested by using the portfolio analysis tool once logged in to your HL account.

Step 5 - check the costs of your investments

Nobody likes paying over the odds for things and investments should be no different.

As an investor, it’s important to check the relative costs of your investments to make sure you’re getting good value for money. Think about the cost, quality and the service provided – things like strategies to avoid losses or income generation.

You shouldn’t simply chop and change your investments in search of lower costs – because any dealing charges can soon mount up. Just make sure you’re aware of any initial charges and the costs of holding your investments. If you do make changes based on costs, only do so when you think you’re no longer getting value for money.

By checking the costs every year, you’re not caught out by any changes to the competitive landscape. Although it’s rare for a fund to increase its charges, if other, similar funds now have lower charges you might decide to make a change, if the new fund looks right for you.

Reviewing the costs involved with your investments can also help find any anomalies that don’t seem right. For example, two index tracker funds could be tracking the same benchmark, but charging different management fees.

Step 6 - have tax rules or allowances changed?

Tax treatment and rules that govern our personal finances tend to change over time. It’s really important to check any changes that have come in when you review your portfolio. It could mean changing how you invest, particularly which accounts you use to hold your investments, as some will have different tax rules.