Maintaining your portfolio

What to follow, and what not to

The daily price mostly tells you about the market's mood. What matters for your own plan is the structure of your portfolio: whether the shares of each asset class are close to target, whether one holding has grown too large, and whether your funds own the same companies.

Following too closely makes you more likely to react to noise in the news. In studies, investors who check their portfolio often make more trades on average, and trading costs money in fees and taxes.

How to assess your return

Total return includes both the change in value and dividends or interest. The price change alone underestimates the return of a portfolio that pays dividends. Always assess the return after costs, and over the long term also after inflation.

Your benchmark has to match what you own. If half your portfolio is in bonds, it makes no sense to compare it with a stock index alone. The wrong benchmark makes a good portfolio look bad, or the other way around.

Rebalancing

When stocks rise more than bonds, their share of the portfolio grows and the portfolio's risk rises without you noticing. Rebalancing brings the shares back to target.

There are two common methods: calendar (e.g. once a year) or threshold (when a share has drifted, e.g., more than 5 percentage points from target). Often the simplest way is to direct new monthly investments to the underweight asset class, so fewer sales (and less tax on them) are needed.

When to change your plan

Your life situation changes. The share price is not a reason. A growing family, buying a home, changing jobs or a goal getting closer can change your time horizon and your capacity to take risk. That's when it's worth reassessing the structure of your portfolio too.

A market decline doesn't in itself change your goal. If the plan was made carefully, it was written for exactly this kind of moment: Make your own investment plan →

Annual review checklist

• Are the shares of each asset class close to target?
• Has any single holding grown too large?
• Do different funds own the same companies?
• Are the costs still reasonable?
• Have there been changes in your life situation or your goal?
• Is there anything to consider for taxes before the turn of the year?