Hands-On Goal Planning – The Ticker Tape (blog)

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Take the Time to Do a Mid-Year Assessment of Your Investment Portfolio

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Every year has its ups and downs. But many would say the first half of 2017 has had more than its share, from global turmoil to political controversy. A lot has changed since the start of 2017, and that’s why now is probably a good time for a mid-year check-up of your portfolio.

A mid-year checkup, if done properly, can help you accomplish several things. It can help you determine if you need to re-assess your goals based on what’s going on inside and outside of the market. And it also represents an opportunity to check how you’re progressing toward your personal financial goals. It’s something every investor should consider, and even look forward to. Because if you’re planning right, the mid-year check up can be like a pat on the back. But if you’ve gone off course, it represents a chance to paddle back into mid-stream.

Re-Visiting Previous Expectations

Many investors entered the year with an inkling that 2017 might be memorable, and it’s lived up to the expectation in many ways. But investors who put more money into cash in late 2016 out of fear that political uncertainty might lead to market weakness probably are at a point where they should re-examine their holdings, because amid all the controversy, markets roared to record highs. Volatility in Washington has surged, but volatility has been historically light in the market.

“There was a ton of uncertainty at the start of the year,” said Devin Ekberg, Managing Director of Education at the Investment Management Consultants Association (IMC). “People were wondering what President Trump was going to do and predicting high volatility throughout the year and substantially higher interest rates. That didn’t happen. So if you were worried about volatility and see its absence, you should ask yourself if you should continue with those beliefs or reassess.”

Putting more money into cash or other defensive positions in January might not have worked out so well. Perhaps now it’s time to reconsider those moves and make some adjustments. That doesn’t mean going “all in” to stocks if you were taking a conservative approach, but it could potentially be a chance to dip into some sectors that might seem undervalued compared with the overall market.

How Are You Tracking?

The mid-year check-up provides an opportunity for you to see if your portfolio is still in the best possible shape to track toward meeting your financial goals. Whether your goals include priorities such as saving for college, retirement, a vacation home, or putting a child or grandchild through college, everyone has different priorities, and you should consider setting up your portfolio with your goals in mind. If you’ve already established your financial goals and are continuously progressing toward them, the question at mid-year is whether the portfolio still matches your pre-set goals.

Perhaps your financial goals have changed since January. If you’ve recently experienced a major life event, perhaps your portfolio is no longer set up to best achieve your goals. A new baby in the family might call for a focus on college savings. Losing a job could mean finding a way to get more money into cash for current expenses.

Balancing Act

A mid-year assessment also offers you a chance to look at your portfolio and see if it’s still in balance. Did the stock market’s rally to record highs this spring cause your stock holdings to climb? It can be important to stay disciplined and don’t let those big gains throw you off your allocation game. Remind yourself how important it is to ensure that your assets are balanced across equities, fixed income, and cash to help you manage growth in tandem with your risk tolerance.

“Stocks are at all time highs, so if you have any kind of stock allocation maybe it has increased,” Ekberg said. “A mid-year checkup gives you a chance to re-balance if necessary.”

A mid-year re-balancing also includes taking a look at your weightings across equities, fixed income, and cash, making sure they remain in sync with your longer-term plans. Depending on market performance, this could potentially mean shifting some money between the three categories. And if life has changed in a big way, you may need to consider reallocating
your assets. For example, more cash might be necessary if you’re about to start paying college bills, for instance.

It might be tempting to keep those big gains in stocks, but if a correction comes, it could knock you off your game. It often pays to be disciplined about your allocations, even if it is challenging in the moment to re-adjust when you feel like you’re doing well. Keeping your goals in mind might make it easier to stay aligned with them.

Another Look At Risk Tolerance

A mid-year check-up is also a good time to once again to consider your risk tolerance and make sure you’re taking the right amount of risk for your age and life situation.

For example, if you’re in your 20s and have a long investment horizon, you may want to consider devoting more of your money to investments that traditionally tend to grow more quickly, even if they do pose higher risk. In general, the longer your time horizon, the more able you are to weather the ups and downs of the market. If you’re approaching retirement, or you’re expecting a big purchase in the short term, such as a first home, you might want to devote less money to more aggressive investments.

Stay Focused on Your Goals

When you do your mid-year checkup, it’s tempting to look at the S&P 500 (SPX) or some other major index and see how your portfolio performed in comparison. Or maybe your friends are bragging about their returns and you wish you could match them. Peer pressure, anyone? Resist temptation, and keep in mind that your portfolio and goals don’t necessarily need to align with the major averages.

“People look at their portfolios and say the market went up so my 401(k) should have, too,” said David Settle, curriculum development manager for Investools® from TD Ameritrade Holding Corp. “But people have in their plans a certain return they expect to get to make their retirement plan work.” Those plans, he added, might not align perfectly with a major benchmark like the SPX.

Maybe theoretically the SPX rose 8% in the first half but your portfolio rose just 4%. That isn’t necessarily bad if your plan is based on 4% to 6% returns. On the other hand, if your portfolio far outpaced the SPX, that doesn’t mean you should get more aggressive.  

Your plan should reflect your growth objectives, investing time horizon and risk tolerance. Not everyone needs their portfolio to grow 8% a year, so if your portfolio grew 4% while the SPX grew 8%, you might still be on track with your goals. Don’t let headline numbers distract you from a plan that works for your individual situation. Any decision to get more aggressive or become more conservative in your growth horizons should be carefully weighed to be sure it correlates with whatever your goals might be.

Sticking to Plan

Remember, the mid-year checkup should be a thoughtful exercise that offers a chance to re-assess progress toward your goals.

Keep an eye on allocations, make sure you’re balanced, and make minor adjustments to take the current market action into account. Ask yourself honestly if you’re sticking to plans, and put things right if you aren’t. Think of the check-up as a chance to get back on track if you’ve diverged from your original plans, and also an opportune time to check progress toward or re-commit to your goals, even if you got a late start.

Hands-On Goal Planning

Speak with a Financial Consultant to help assess your goals and confirm that your portfolio is allocated accordingly.

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