Portfolio reviews

Lesson in Course: Portfolio management (beginner, 4min)

We go to the doctor to check our health. How can we tell how well our investments are doing?

Getting a routine physical checkup is an integral part of staying healthy. Similarly, reviewing our portfolio is how we identify what investments are working well and diagnose potential risks. It also allows us to determine what changes we need to make to improve our performance. 

A good portfolio checkup makes sure our investments align with our goals, financial situation, and risk tolerance. That said, here is when we’ll want to review our portfolio:

  • If our goals or financial situation has changed
  • If there have been any major changes in the markets or to the risks of our investments.
  • If it’s been over a year. We should schedule recurring checkups at least once a year.

Let’s walk through what to look for in a portfolio performance review.

Measure goal progress

The first thing we want to confirm is to make sure our goals are still relevant. Significant life changes can cause us to change our plans, which means re-evaluating our strategies and the appropriate investments for reaching them. 

Example of how to adjust our goals

Let’s say our objective was to have $500,000 for retirement when we’re 65 years old. Having a child might mean devoting some money to college savings, therefore lowering your contributions for retirement. As a result, we might consider retiring later and investing more aggressively to compensate for the lower contributions.


Check portfolio returns

Next, we’ll want to make sure our portfolio is making money the way we expect.

If our goal is growth, are our investments providing the return we expect? We don’t want to look only at the bottom line - did our assets go up, down, or sideways. We need to compare our investment returns to our benchmark! If our portfolio underperformed, we should consider looking for better-performing investments.

If our goal is to live off of our investment income, how much is our portfolio generating? Based on our goal, we’ll know whether or not we missed the mark. We should check if companies cut dividends or if interest rates fell. In this case, we would explore other investment options that would provide more income.

Consider the risks

Lastly, let’s evaluate the risk level of our overall portfolio as well as each investment.

Our portfolio has too much risk if we are taking larger losses than we are comfortable with during market downturns. Likewise, we have too much risk if we’re losing sleep at night over it and need to consider making lower-risk assets, like bonds, a sizeable part of our portfolio.

On the other hand, taking too little risk can mean we’re missing out on potential growth, making it less likely that we reach our goal. If this is the case, we can move more of our portfolio into riskier assets like stocks.

We don’t want too many eggs in one basket either. Over time, the outperformance of one investment relative to another will cause the combination of assets in our portfolio to be out of sync with our desired risk level. In that instance, we’ll rebalance the amounts back to our intended mix.

Example of a drifting investment mix

Let’s say we want a portfolio that has 50% stocks and 50% bonds. However, over time, the value of stocks goes up faster than bonds causing the values in our portfolio to drift away from our intended mix - let’s say it goes all the way to 70% stocks and 30% bonds. This is a riskier portfolio, and we’d want to sell some of the stock and buy bonds to move back to our desired 50/50 portfolio.

The risks of a given investment change as market environments change, such as new disruptive competitors in an industry, changes to interest rates, politics, changes in the value of a currency.  

Our company stock awards count here as well! Our paycheck depends on our employer, but we don’t want to overexpose ourselves to company risk by holding too much stock as we receive more awards over time.


Supplementary materials

The lesson about risks to our portfolio dives deeper into some of the different threats we should consider during our portfolio reviews.

Here are a few tools to help us review our investments:

  • Personal Capital is an excellent tool for beginners. It’s free, easy to sign up and connect our investment accounts. The dashboards provide visuals for our portfolio’s risk and return.
Personal Finance Tools, Wealth Management, Guides | Personal Capital

Take control of your finances with Personal Capital's personal finance tools. Get access to wealth management services and free financial management tools.
  • Morningstar Portfolio Manager is slightly more advanced. Even though we enter investments manually, it has more robust tools for analyzing our portfolio, including screeners for filtering searches to find new investments, more research into each asset we own, and comparison to indexes.
Portfolio Manager | Morningstar

Track your investment portfolio, evaluate your strategy, and create watchlists of potential opportunities.  Start a 14-day free trial to Morningstar Premium to unlock advisor-grade portfolio management reports.
  • Portfolio Visualizer is for experienced investors and those looking for the most profound analysis. It provides quantitative tools for portfolio modeling and backtesting, Monte Carlo simulations, portfolio optimization, and more.
Portfolio Visualizer

Portfolio Visualizer provides online portfolio analysis tools for backtesting, Monte Carlo simulation, tactical asset allocation and optimization, and investment analysis tools for exploring factor regressions, correlations and efficient frontiers.

Actionable ideas

Regularly reviewing our investments is an essential part of being a successful investor, even if we have a managed account. We should assess our portfolio at least once a year, but every 3 to 6 months is preferable. So let’s schedule the next checkup - this week if it’s been a while, or a few months from now if we’ve looked at our account recently. Mark it on the calendar!