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How often should I review my portfolio?

I receive quarterly statements about my 401k plan, but how often should I seriously evaluate the effectiveness of my portfolio and consider making changes?

Feb 24, 2012 by Roberto from Corpus Christi, TX in  |  Flag
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16 votes

Jeffrey raises a good point --investors do better when they avoid changing their portfolios often (typically in response to the market). Why? Investors typically sell at low points (sell into weakness) and buy at higher levels (buy into euphoria). The best policy is to select a model portfolio (ideally a target-based fund) that's consistent with your risk tolerance and has a good balance of stocks/bonds/cash (e.g. 60% stocks/40% bonds). Once you select this, stick with it and avoid making changes on the basis of market movements.

1 Comment   |  Flag   |  Feb 24, 2012 from Berkeley Heights, NJ

Eve, thank you so much for your thoughtful responses.

Flag |  Feb 24, 2012 near San Diego, CA

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6 votes

Great question, Roberto.

My suggestion would be to first make sure you are saving enough money for retirement. (This in itself has very little with the investments you choose). If a person is only saving $50 per pay and never changes it doesn't matter what return is! That being said you want to make sure your portfolio is globally diversified. If you are using actively managed funds, compare the returns to funds in the same category. So if your emerging market fund goes down by 20% and a like index goes down about the same don't do a darn thing. If that same fund went down by 20% and the like index only goes down by 5%, your fund is probably taking too much risk. In fact if your fund goes up by 45% and the like index only went up 15% your fund may be taking too much upside risk. If you are using index funds you don't have to worry about all these gyrations.

One last thought I'll leave you with, Roberto: Academic studies have shown that people who look at their quarterly statements have poorer returns than people who don't look at their statements. The first group often feels they need to do something to counter balance a bad investment return. They then sell an investment that is down to purchase an investment which is doing well. Unfortunately, the just sold low and bought high which is a recipe for disaster!

Comment   |  Flag   |  Feb 24, 2012 from Cleveland, OH

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1 vote
Barry Rabinowitz Level 19

Hi: Based on your risk tolerance and time horizon- I would pick an asset allocation and stick to it unless something changed in your personal situation.Timing the market does not workand that is why the average investor does alot worse than the markets over time. I would review my asset allocation and rebalance once a year.

Comment   |  Flag   |  Feb 25, 2012 from Fort Lauderdale, FL

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