Monitoring your Investment Portfolio

The original idea for this post started with a rant I wrote about women not investing enough. I am now continuing in my series of Learning to Invest.

Incase you missed the first 3 parts, here they are:

1. Researching stocks the smart way
2. Using a Mock Investment portfolio
3. Choosing your first stocks

When you’re learning to invest, the research doesn’t stop once the mutual funds and other assets are added to your portfolio. Instead, it’s important to regularly monitor the performance of your investment choices so that you don’t end up with a portfolio that at best wildly differs from your starting goals, and at worst, proceeds to bankrupt you in the process, too.

Here are a few key reasons why consistent maintenance prevents financial disaster:

• It allows you to adapt quickly to a changing market.
• Aids in the identification of under-performing investments.
• Helps pin-point assets with a high earning potential.

The best way to monitor your investment portfolio is to establish reasonable benchmarks for comparison early on.  In addition to setting long term goals, like ensuring you have enough for your retirement fund, you will also want to throw in some short term monetary goals, as well. For example, paying off a car loan, or becoming a home owner, are both achievable short term goals.

There are three primary types of benchmarks that you will use to monitor the behavior of your investments:

1. Peer Groups
2. Market Indexes
3. Personal Benchmarks

It’s important to learn how to use all three to establish the true behavior of your portfolio. After you have set your personal benchmarks, and established which market indexes are realistic to use for your individual portfolio, then the next step in learning to invest is indentifying when it’s time to cut non-performing investments loose. Although daily, weekly and monthly fluctuations are normal due to the volatile nature of the market, a fund that is no longer meeting the majority of your personal benchmarks over a pre-specified period of time is unlikely to help you reach the ultimate goal of financial freedom.

Tools that Will Help You Monitor Your Investment Portfolio

• A well thought out financial plan. One of the best ways to ensure that your investments are on track is to draft out a financial plan that clearly lays out how much financial risk you can allow yourself to take. In addition to making the decision to sell or hold stocks easier, a clear risk assessment will help prevent getting caught up in the moment and spending too much when your assets appear to be doing well. Ideally, this should be prepared well before you start buying stocks and adding mutual funds to your portfolio.
• TD Asset Management. If you are uncomfortable taking on the task of maintaining your portfolio alone, then you may want to consider hiring the help of a professional. For instance, the team behind TD Asset Management can not only help you set up customized goals, but they can also help you identify which assets are no longer worth pursuing. Sometimes, the best way to learn how to predict and monitor market behavior is by watching someone else with experience do it – at the very least, don’t forget to ask for advice.

Final Words on Monitoring and Maintaining your Portfolio

While it’s important to understand that your investments will constantly change, you should always keep their overall behavior under close observation. If you don’t, your portfolio may end up deviating from the financial goals you are hoping to achieve – which would undermine the entire point of learning to invest in the first place.