The importance of monitoring your investment portfolio

It's a common mistake: while most investors are normally willing to spend time researching interesting funds and stocks, they are far less enthusiastic when it comes to monitoring their decisions regularly.

The worst offenders are those who buy-and-forget investment products - they run the risk of finding out in a few years' time that they have paid a hefty price for sticking with poorly performing asset classes.

This is why reviewing your portfolio on an ongoing basis (to ensure that you are in the most suitable asset classes and that your chosen funds are generating an acceptable level of return) is one of the golden rules of investment.

We've divided up the following advice on reviewing your portfolio into three sections using a traffic light system. Green is when reviews are useful, but not pressing; amber is for more important overhauls; while red is for urgent reviews.

Five steps to reviewing your investment portfolio


You should carry out a green-light review when nothing appears to have changed: your circumstances remain the same; the world hasn't suffered a global meltdown; and your longer-term financial planning requirements are still in place.

So why bother? The fact is it's sensible to examine your portfolio at least once a year, although a quick interim check every few months is a good idea, according to Justin Modray, founder of website Candid Money.

"Failing to review your portfolio means you risk holding onto investments that are underachieving or no longer suit your needs," he says. "If you neglect to service your car, there's a higher chance it will let you down; the same is true of investments."

There's also the chance that the weightings of various asset classes have changed so your portfolio is no longer correctly balanced, says Jane Davies, senior portfolio manager of the HSBC World Selection range of funds.

"During the course of a year, some investments will grow faster than others, so the weightings will change. There's a danger that you might be exposing your portfolio to a higher level of risk than you're willing to take."


When should you think about an amber warning-light review? These are the instances that may not seem dramatic at first glance but warrant an examination of the portfolio's holdings, in case changes need to be made.

The first reason, says Patrick Connolly, spokesperson for financial advisers AWD Chase de Vere, is if there have been any major changes in your life that could affect your overall investment goals or where you should invest.

"These may take many forms, including major upsets such as redundancy or divorce," he adds. "They can affect your view of how much risk you wish to take, or the level of income you need to generate."

Of course, your overall goals may alter in response to positive life events too, such as getting married or having a baby, both of which require longer-term financial planning.

So why would such events affect your portfolio positioning? According to Dennis Hall, founder of Yellowtail Financial Planning, this depends on exactly what has happened - and whether you have an increasing or decreasing need for cash.

"You might receive an inheritance or other windfall, or decide to take a job overseas," he explains. "Alternatively, you might become self-employed, sell your business, or decide to take a sabbatical from work."

A need to increase the amount of available cash, for example, could prompt a switch into more income-generating assets, whereas a windfall of some description could mean you decide to channel available funds into longer-term growth assets.

As well as examining whether your portfolio has the right approach to risk/reward and meets your longer-term objectives, you should also examine the performance of the individual funds into which you have invested. Is the level of returns what you had expected? Have they beaten or lagged their peer group? Are there any particular reasons behind these figures?

If a particular investment has done substantially better than expected, it might be worth taking some profits and channelling them into other assets, which have more potential to grow over the coming years.

Conversely, if a fund has badly underperformed and there are reasons to suspect that its returns are unlikely to get better in the immediate future, it could be worth moving elsewhere. This is a situation where you might benefit from the opinion of a qualified financial adviser.

Then there are changes prompted by regulatory decisions - particularly those affecting your taxation or pension arrangements, says Connolly. "It's important not only that you have the most appropriate investments but that you hold them as tax-efficiently as possible."

Events around the globe must also be taken into account. You may wish to steer your portfolio towards the areas - and sectors - most likely to benefit over the short to medium term, as well as avoiding those that are likely to be adversely affected.

But it's not worth chopping and changing every time the market moves a few points. "Don't get seduced by short-term investment sentiment or flavour-of-the-month funds and asset classes," Connolly warns.


These are the situations when every alarm bell should be ringing, regardless of how long it's been since the last review.

If the manager of a particular fund leaves, for example, you should re-examine the case for holding it. Ask why have they gone: have they quit or been fired, and who's going to take over?

It doesn't mean you should automatically sell the fund, as the manager's replacement may be even better, but you need to take a close look at the situation.

"Most managers go off the boil for periods or are replaced, and this may be a trigger to change the funds in which you're invested," Hall says. "If you bought it because of its star manager, then their departure could cause some unease."

Most people buy funds for specific reasons - to invest in particular regions and sizes of company, for example - so if your fund suddenly changes its aims it should prompt an immediate review.

"There can also be the problem of a more gradual 'style drift' in active fund managers," Hall adds. "This is when they change the focus of a particular fund over time."

Fees too can take a large bite out of your returns, so if some of them are performance-related, any increases in charges may also be a concern.

We've already identified that positive and negative changes in performance should trigger an amber alert, but significant swings should prompt an urgent red-light review of your investments and general asset allocation.

Connolly says: "The role of a review in this scenario is to manage the level of risk in your portfolio, as well as to identify opportunities - for example, if particular assets have been over-bought, which means they're expensive, or over-sold, when they look cheap."

Whatever the reason for a review, the main thing to consider is whether your portfolio is as appropriate for your needs as the day you set it up, says Modray. "This means checking that your investments are mixed in sensible proportions, the fund managers are doing a good job, and you're happy with the overall level of risk."

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