The Importance of Regular Portfolio Reviews

Financial planning is not something you set and forget. Things change. Life happens. How you want to spend your time and who you want to spend your retirement with doesn’t always match what you thought five, 10, 15, 20 years ago. Children can change your goals – and your financial needs. The sale of a business can change your lifestyle. A divorce, loss of a spouse or marriage can change your cash flow and goals. And what about a market change? This is why it’s a good idea to review your portfolio with your financial advisor on a regular basis; at least once per year.

Your portfolio and your plans can be affected by many events in the course of a year. Both market performance and changes in your personal life can affect the size of your portfolio, its allocation, your goals, your life plans and any decisions about the beneficiaries of your portfolio.

It’s wise to meet with your financial advisor whenever a major life change occurs, such as a buying a new home or purchasing a business. But given that many folks are busy, an annual review can help ensure that your life changes and new plans can at least be addressed.


Want a second opinion about your financial plan? Contact Oliver Wealth Management to see how we can help.


Regular Reviews and the Market

One of the benefits of working with a financial advisor, is you should receive regular portfolio reviews and updates on how the market is doing. Many Do-It-Yourself investors don’t give this information enough attention or notice how market performance may be affecting their life plans.

Because the risk and reward profile of investments vary, it’s important that your plan is properly calibrated to your specific risk and reward preferences and profile. A portfolio allocated heavily to high-risk investments, for example, may not be the best idea if you plan to retire in the short term, because high-risk investments can drop in value, and a short-term time horizon may not be enough to make up a decline. Investors in their 20s or 30s, on the other hand, may have decades before retirement to recoup losses from higher risk investments.

Stocks provide some of the highest returns of any investment class. In the period from 1973 to 2016, for example, they returned 11.69 percent annually, on average, including both up and down years. But they can also carry high risk.

Bonds, on the other hand, fluctuate minimally, so carry low risk. But their reward is also low.

An appropriate risk evaluation is crucial to financial and retirement planning.

A yearly review with a financial advisor should include a current review of the market, your portfolio and your risk profile.

It’s also wise to rebalance your portfolio when necessary to help ensure that market moves themselves don’t inadvertently change your allocation. Say you have a portfolio ticking along with 53 percent in stocks and 47 percent in cash instruments. If your stock investments rise in value 15 percent during the year, the stock portion of the portfolio at the end of the year will be much greater than 53 percent. Rebalancing can re-establish your desired allocations and make sure you are still on track.

An annual review should also look at your asset allocation for any changes to your goals. Do you have more of a need to conserve capital, for instance, or less? These changes can necessitate adjustments.

Regular Reviews and Your Life

Your life plans and any major life changes also need to be reviewed on a regular basis. The chief objective should be to make sure you’re still on track to meet your goals. Is a new home a goal, for example? If so, are your plans for a down payment still solid?

Life changes such as marriage, divorce or children should also prompt a review of your portfolio and financial plans. (How will this affect your retirement plans?) Financial advising includes a portfolio, of course, but you should also include other elements of financial planning in a yearly review. Is life insurance now a priority? Do you need to start a college savings plan for children? If a divorce is occurring, will you be moving (and thus need a new home), or supporting your former partner and children? All can prompt significant financial changes.

What if you’ve received windfall profits during the year? It happens – significant bonuses, bequests from relatives and even lottery or game show winnings can occur! What are your plans for the windfall? It pays to discuss the plans with a financial advisor who can help you with any tax considerations.

Finally, a regular review should also revisit the beneficiaries you have listed on your estate. It is common to focus only on portfolios and goals during an annual review. But the fact of the matter is, comprehensive financial planning should also include your estate plan. What if you got married in January and welcomed a child in November? If a will is in place that doesn’t include them, your estate will likely go to the people named in that will.

The only way you can make sure that the people of your choice inherit your estate is to make a will. This may not be something people like to think about, but the alternative can be months of assets tied up in court and years of family wrangling.

Not updating beneficiaries is one of the most common estate planning mistakes made. So make sure to review your beneficiaries for retirement plans as well, such as Individual Retirement Accounts (IRAs) and 401(k)s. These are different than a will. If these are old, and you have new family members, the new family members will not receive them unless you specify that they should.

If you have questions, ask your financial advisor. Your future is too important to leave to chance.