When and why portfolio reviews are necessary

Tax filing done, it is now time to focus on your portfolio. One part of this is a portfolio review. Investors often invest but do not review their overall portfolios, leading to  financial plans becoming stale or investments irrelevant. For example, driven by high interest rates, an investor opens a fixed deposit for 18 months and if at the end of the first year, interest rates fall, the investor will need to assess how to manage the reinvestment risk. Else the investment will not tie in with the goal it is invested for. 

Portfolio reviews are important to check the progress of one’s finances. Seeing the financial picture in black and white can not only give the right perspective i.e. reassurance that goals are being met or highlight areas where action needs to be taken, but also help evaluate how resilient the portfolio is to changing markets. 

Before the portfolio review, it is important that investments be done based on a financial plan. Without the base of a financial plan, the portfolio review would be a mere exercise of assessing investment performance. 

It is recommended to have an annual portfolio review, either by calendar year or financial year. The annual review will give an idea on how much of goals have been met, underperformance issues in schemes and if changes need to be made like in the case above. Additional investments from income raises and bonuses can also be planned in the portfolio review. The review can also be used to realign goals and their values to changing lifestyle needs and  aspirations. For example, increasing the value of education goal keeping in mind foreign education costs. 

The portfolio review also can be used to reprioritise goals. For instance, there may be a sudden unavoidable large expense for a period of time like medical treatment of a family member. In such cases, reviewing the portfolio will help in figuring out the changes to be made and the impact on short term and long-term finances. 

Financial plans need to be reviewed when there are major changes or transactions. Big life milestones like getting married, having a baby, separation from partner, death of family member would warrant a portfolio review. Changing jobs where compensation structure might be very different or just a new employer stock grant could be other reasons to have a portfolio review to assess if changes need to be made to the way goals are invested for.

Although an annual review is recommended, it is important to have a review, when nearing a goal, say a year from the goal. This needs to be done to check the value of goal achieved and take action, if needed to protect the goal value. 

A financial plan guides on the path to reach financial goals. Portfolio reviews let investors be more in control and give the ability to base decisions on current information and relevant to the investor’s goals.