Why You Need to Review Your Portfolio and How to Do It

Once you’ve gotten into the swing of things with your personal finances (you’ve been tracking your expenses for a while, you know what’s on your credit report, you’re contributing to your pension and you’ve been savings and investing money regularly). What next?

Taking the Next Step

It’s a great feeling to have all your ducks lined up and it can be easy to just sit back and relax as you enjoy other activities in life. There’s no reason you can’t spend your time on other activities but in order to sustain and constantly improve your financial situation, you should monitor it and your progress. It’s time to review your portfolio.

Capture the Details in a Simple Way

With interest rates at an all-time low for the foreseeable future, staying vigilant with your accounts could not be more important. Reviewing your portfolio can be a very personal task. Here I outline the steps I take:

1. Write down or collect total assets in a spreadsheet
2. See whether my savings and investments are actually growing

Here’s an example of how my spread sheet looks (click for full-sized image):

Inflation and Tax

If the column named Post-Inflation is above 0% then I have growth. Many people can deceive themselves into believing they’re getting 2 – 4% interest but without taking into account tax (lower or higher rate depending on your circumstances). In my example, my current account is in negative growth which is not a good thing although this is a place to hold my money temporarily before it whizzes off to pay a bill or contribute to my savings.

Any accounts that don’t match up should be ringing alarm bells.The only allowance I make for any rate this low is if that fund is my emergency fund. When looking critically, you need to remind yourself of your goals as this will give you an indication as to whether you need to change it up or not.

Time and Risk

Consider your time-frame for each account and therefore how much you’re willing to risk on investments other than cash. Understanding your asset allocation and the rationale for your choice will help steer future investment decisions. Generally, investments should be considered longer term (at least a year and for me I consider them to sit in the three-year time-frame).

Funds for Goals

I have three goals and a fund linked to each one as follows:

1. Property deposit
2. Emergency
3. Relocation

I don’t have only three accounts that are targeted at these funds but rather spread my savings and investments across around 10 accounts. Each of these is labelled as a contributor to the ‘property deposit’ or ‘emergency’ or ‘relocation’ goal. Sounds like overkill but I’ve had 15 accounts before and it’s an exercise like this one which helps streamline my accounting as well as push me towards my goals.

Seeing how much I’ve saved compared to a year ago is sobering and if you’re the same it may be time to do the following:

1. Review how you spend
2. Increase your earnings
3. Revise your targets as they may be unrealistic

Like anything you’re trying to improve in life, measuring your progress is key but if you never do anything with those measurements they become pointless. Think of building your fitness, dieting or studying.

All information provided at Life-Life Balance is for informational purposes only. MM is not a qualified financial advisor. Before making any decisions on your finances you should seek advice from a qualified advisor.