By investing, you’re putting your money to work toward your financial goals. But successful investment portfolio management goes beyond making that first trade. As life changes and market volatility affects investment values, your asset allocation may shift. Whether you manage your investments yourself or use portfolio management services, knowing what to look for and change, if necessary, during periodic reviews can help keep your portfolio strong.
What is portfolio management?
Portfolio management is the ongoing process of monitoring and adjusting investments to help keep them aligned with your financial goals, risk tolerance, and time horizon. It’s not a one-time task. As your goals evolve and markets change, your portfolio may need periodic attention to stay on track.
How does portfolio management work?
Portfolio management calls for having a plan for your investments and regularly checking in on their performance to make sure they still fit that plan. There’s no perfect schedule for this: Peeking too much could be stressful, but looking infrequently could mean you don’t notice your money straying from your plan. That’s why it’s important to check on a cadence that works best for you. Fidelity recommends checking in on your investments at least annually; after a big life event such as marriage, divorce, or the birth of a child; and after a major market change, such as a correction.
Once you’ve set aside time to review your investments, focus on 3 key areas:
- Make sure your portfolio still aligns with your goals.
There’s nothing wrong with your financial priorities shifting over time, but it’s crucial to check that your investments are in line with today’s goals—and not yesterday’s. If all has stayed the same, great. If not, it might be time to make some adjustments. Even if your financial goals haven’t changed since the last time you checked, you might still have some work ahead of you. If the performance of your investments since your last check-in changed the percentage of your money invested in certain asset classes (like stocks, bonds, and short-term investments), you might want to rebalance your portfolio. Rebalancing is when you change the portion of your money that’s invested in each asset type.
- Monitor each investment’s performance.
Next, take a magnifying glass to individual investments to see how each one is faring. Check whether they’re meeting your expectations or if it’s time to enact your exit plan. Ask yourself, “Does this investment still make sense for my investing strategy and financial goals?”
- Look at your portfolio’s overall performance.
Finally, check the performance of your whole portfolio. You need to know 2 things: whether your portfolio is on pace to meet your goals and whether it has performed in line with an appropriate benchmark—a composite of indexes matching your specific mix of stocks, bonds, and cash over a similar timeframe. If your portfolio is trailing its custom benchmark, it may be time to evaluate your underlying investment.
Types of portfolio management
There are 3 general types of portfolio management. The right one for you depends on how much time, effort, and money you’re willing to put in and how much control you want.
- Do it yourself. This will mean regularly checking on your mix of investments, doing all your own research to figure out what to keep, sell, or buy, and making those moves yourself. This could take up more of your time, but you’d have total control over what you invest in. It’s also usually the least expensive option.
- Robo advisor. A robo advisor is an affordable digital financial service that uses technology to help automate investing, based on information investors provide about themselves including their risk tolerance and financial situation. After that, it keeps an eye on things for you and typically rebalances your account by automatically buying and selling investments to help keep you on track over time. Fidelity’s robo advisor, Fidelity Go®, offers you the option of adjusting your investment mix as you get closer to your goal.
- Dedicated financial professional. For those seeking more personalized support, managed account services and wealth management can help you with both financial planning and investing. Expenses may vary based on the services provided and how fees are structured.
How do you rebalance your portfolio?
If you decide to go the DIY route, you may need to rebalance your portfolio—buy or sell investments until you hit your ideal asset allocation. Here are 5 steps to rebalancing.
- Revisit your original investing plan and target asset allocation.
Hopefully when you started investing, you decided on a target asset allocation, or what percent of your total portfolio you want invested in different types of securities (like stocks and bonds) or left in cash. If you did not make that plan, now may be a good time to create an asset allocation strategy (or work with a pro to help you create one) that aligns with your financial goals.
- Determine your portfolio’s current asset allocation.
This might take a bit of math but see what percent of your total portfolio is represented in different investment types. This could be as high level as looking at how much money you have in stocks, bonds, and short-term investments, or it could be more specific to factor in how much stock you have in different sectors, different size companies, and different management styles (like actively managed versus passively managed mutual funds or exchange-traded funds).
- Consider whether your past asset allocation fits your current financial goals and timeframe.
How and when you want to use the money in your investments might change over time, so your asset allocation might need to too. For example, if you’re 1 year out from buying a house, you might want to allocate more of your portfolio to more-secure investments, as you have less time to recover from a potential market drop before closing time.
- Buy or sell investments to rebalance your portfolio.
If your investment mix has drifted away from your target allocation, you may want to rebalance. But first ask yourself: How large of a drift are you willing to tolerate? For instance, maybe being 10% off your target allocation in any asset class would trigger action. You can rebalance your portfolio either by using new contributions to help restore your target allocation, or by selling investments that have grown beyond their target weight and buying those that have fallen below it. If you’re rebalancing in a taxable brokerage account, remember that selling appreciated assets can trigger capital gains taxes.
- Set a time for your next portfolio check-in.
Today’s work might be done, but make sure to set yourself up for the future by scheduling your next investment check-in. A reminder in your phone or on your calendar could help keep you, your money, and your financial goals on track.
-
Sounds like too much work? If you don’t want to manage your portfolio on your own, there are professionally managed options that can help. Target date funds rebalance over time and may be used to support a variety of long-term savings goals. For those saving for retirement, these funds gradually become more conservative as the anticipated year of retirement approaches.