5 Steps to Review Your Portfolio

Now is a great time to review your investment portfolio. After the volatility of the summer, reassess what you are holding - and whether it still serves its purpose

Christine Benz 25 September, 2014 | 3:42PM
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Save the holding-by-holding due diligence: checking up on individual funds' performances should be left for your year-end review. Instead, focus on the following five steps as you review your portfolio.

Step 1: Assess Your Asset Allocation

Because your portfolio's mix of stocks, bonds, and cash will be a key determinant of how it behaves, it's wise to start the review process by checking your asset allocation relative to your targets. Morningstar's X-Ray functionality, whether you access it through Morningstar's Portfolio Manager tool or Instant X-Ray, will give you the most precise read on your current asset allocation.

For most investors who have been hands-off with their portfolios, it's a good bet that they're overly tilted toward equities right now. After all, most developed market equity funds have made significant gains gained over the past five years, whereas most fixed-income categories have not. Don't feel obligated to rebalance if your bond weighting is just a few percentage points lighter than your target, but if it's lower than your target by five or 10 percentage points or more, it's time to craft a rebalancing plan. That's particularly important if you're within 10 years of retirement. Think of it as the equivalent of walking away from the casino with full pockets. True, stocks aren't egregiously overvalued, based on Morningstar analysts' bottom-up assessment of their price/fair values. But they have performed very well over the past decade – and especially over the past five years – so it's time to lock in some of your gains so they'll be there for you to spend when you need them.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.