Rate of Return

Give your investment portfolio a 
mid-year ‘refresher’

It seems as though just yesterday the calendar said 2016 and there was still time to take a closer look at your investment portfolio before the start of yet another year. Now, half way through 2017, perhaps your to-do list still includes, “Evaluate my investment portfolio.” Here’s a few tips to help give your investment portfolio a mid-year “refresher.”

To begin this process, you will likely want to evaluate your investments’ performance in 2016. Rather than comparing your returns against those of a “benchmark,” such as the S&P 500 index, consider using your own benchmarks to determine how well you are being served by your investments.

Perhaps the most important individual benchmark to consider is the rate of return you need to reach your long-term goals. To estimate this figure, you first need to assess those goals. What sort of lifestyle will you have in retirement? Do you want to retire early? Aside from your investment portfolio, what other sources of income can you count on? By answering these and other questions, you can determine the rate of return you will require from your investments. You can then create an appropriate strategy and adjust your investment portfolio to help you achieve that return.

Apart from evaluating your investments’ performance over the past year, you can work to refresh your portfolio by considering selling investments that are no longer essential to your portfolio and that have declined in value. If you sold these investments, you could use the loss to offset capital gains taxes on other investments you’ve sold that have appreciated. If the loss from the sale was greater than your combined long- and short-term capital gains, you can deduct up to $3,000 against ordinary income (wages or investment income from bonds, certificates of deposit (CDs), or stock dividends). So, not only can you potentially gain a tax benefit from this move, you can also free up some dollars from the sale—money that you can use to purchase new investments that can help you further diversify your portfolio.

And diversification is important. By spreading your investment dollars among domestic and international stocks, mutual funds, bonds, government securities, and CDs, you can reduce your vulnerability to downturns that may primarily affect just one type of asset. That’s why it’s always a good idea to periodically rebalance your portfolio.

In fact, it’s possible for your portfolio to become unbalanced all by itself. For example, if you own some stocks and mutual funds whose value has grown significantly over the years, these investments may now take up a greater percentage of your portfolio than you had anticipated or planned for, which means you may also now be taking on a higher-risk level than you’d like. If this happens, you may need to adjust your investment mix to realign it with your risk tolerance.

Keep in mind, though, that you must always have some growth potential in your portfolio, even during your retirement years when you will need at least some of your investments to grow enough to keep you ahead of inflation.