Mid-Career: Solid Performer - Jim and Brenda's Annual Review

Solid Performer

Strategy

Portfolio composition: Multiple funds, including pre-built portfolio investment funds.

Tips

• Annually fix a date to review the portfolio. Better yet, develop an investment policy statement (IPS) and include an evaluation of both, in your annual review.

• Investors who consistently avoid the annual review process may be better served by exclusively using pre-built portfolio funds or hiring professional money managers.

To-Dos

1. Check for suitability:

• Has the personal situation changed (such as a job change, marital status)?
• Is the combination of funds and other investments still suitable?
• Has the target asset mix changed?

2. Monitor, report and evaluate portfolio parameters:

• Does the portfolio’s asset allocation match the target asset mix?
• Is a percent allocation held, of a single company or industry, within the pre-set range? For example:
  • Percentage held in a single company: <10%
  • Percentage held in a single industry: <20%
  • Percentage held in employer’s shares: <20%
• Were funds added, removed or modified over the year? For what purpose?
• Review investment fund reports for each fund held:
  • Compare each fund performance against its benchmarks and similar funds.
  • Is performance within an acceptable range above/below the benchmarks?
• Review fees of funds held and those available through an employer’s group plan:
  • Are lower fee alternatives available?
• Are returns as expected? If not, is it due to an underperforming or high-cost fund versus a broad decline in the markets?
  • Does the retirement plan need to be updated to reflect any unexpected returns?
• Are investments held in registered and non-registered accounts adjusted to be tax-efficient?
  • Investigate: Design Tax-Efficient Portfolios

3. Identify required changes and implement portfolio adjustments:

• Best practice: annually update a current asset mix spreadsheet to track where the portfolio doesn’t match the target asset mix.
• Identify investments that need to be sold and investigate replacements based on suitability, fund performance and fees.
• Identify if a lump sum of money will be added or removed from the portfolio before rebalancing.
• Rebalance, at least annually or when a significant event occurs, by either buying and selling investments or altering where periodic contributions to existing investments are going.
• Less than 10 years to retirement?
  • Plan when and how to transition the investments to a retirement portfolio.
  • Check the equity allocations and “glide path” of any target date funds.
    • Is the transition too much or too fast?

To review Jim and Brenda's story, see Mid-Career: Solid Performer - Jim and Brenda's Story.