- Evaluate your progress toward any specific goals.
- Check your asset allocation.
- Evaluate the performance of individual investments against benchmarks.
"Am I investing the right way for my situation?" It's a source of anxiety or confusion for many investors. How do you know? You diligently contribute—and choose mutual funds—for your 401(k) or IRA. You probably also have a brokerage account where you put some extra money into a mutual fund. But are you on track to hit your goals?
Whether you're a seasoned investor trying to maximize every investment dollar, or a beginner who just wants to retire one day, you need to take the time to understand how your investments are doing, and if they are working well for you. Here is a simple 3-step checkup plan.
1. Focus on your goals
What are the goals for your investments? You may have some long-term goals, like retirement, and some shorter-term goals, like buying a new car or a house. The time frames around your goals, along with your tolerance for risk and your financial situation, will help determine your investment strategy.
Let's start with saving for college. Say you envision sending your newborn to an in-state public school and plan to cover 50% of the expenses with your savings (with the remaining 50% to be covered by a combination of scholarships, grants, and financial aid). According to the College Cost Calculator from the College Board, the total cost would be about $222,466, for which you will pay $111,233 over the course of 4 years.
Using Fidelity's college savings calculator, we estimate you would need to save about $200 per month over 18 years, assuming an annual rate of return between 1% and 3%. Saving less per month would require a longer period of time over which to save—or a higher rate of return, which you can't always count on.
What about retirement savings? For a 25-year-old aiming to retire at age 67, Fidelity's savings factor would suggest aiming to have saved 1x (one times) your salary by age 30. By the time retirement hits, we estimate you should have amassed 10x your salary.1
Find out more about Fidelity's retirement saving guidelines. Read Viewpoints on Fidelity.com: How much do I need to save for retirement?
Or even better, do a more detailed analysis of your goals—including education—in Fidelity's Planning & Guidance Center. If you are not on track to achieve your goals, you can try to catch up by saving more or postponing your planned retirement date—and you may also need to adjust your asset mix.
2. Check your asset mix
When you started investing, you probably set up a diversified mix of investments that targeted a certain level of risk based on your goals, time horizon, and tolerance for volatility. A diversified portfolio is made up of different types of investments with varying patterns of risk and return—like stocks, bonds, and short-term investments. If one part of your investment is declining, another part may be doing well, or at least not going down as much. The goal of diversification is not necessarily to maximize performance, but it may help limit the losses for the level of risk in your portfolio if the markets decline.
Ensuring that your mix of investments continues to reflect your chosen level of risk is an important part of the review process. Market moves can shift that allocation out of alignment with your goals. As a result, your investment mix may become more or less risky than you intended. Your stock and bond investments may become over- or underweighted relative to your other investments, which can shift the level of risk and return you may be trying to target.
Check your asset mix at least once per year to help keep it on track with your objectives. If your goals change significantly—or, after big moves in the market—review your investments, and if your investment mix has drifted significantly from your target asset class weights (for example, by 10% or more), consider rebalancing your portfolio to your initial target mix.
A good rule for rebalancing is to direct more of your contributions into the investments that have lagged behind and reduce purchases of investments that have appreciated. Consider bringing your portfolio back to the target asset mix at least annually—the habit of doing so will allow you to maintain your portfolio in a disciplined way.
Read Viewpoints on Fidelity.com: Give your portfolio a checkup
3. Benchmark individual investments
You should look at your investments to ensure that they are still an essential part of your plan. Evaluate the performance of stocks, bonds, mutual funds, or ETFs by comparing them to appropriate benchmarks. The easiest way to find the appropriate benchmark index is on the stock, bond, fund, or ETF research page on Fidelity.com.
Ask yourself these questions:
Why did you buy this investment?
Does it still fit into your strategy? What role is it supposed to play in your overall plan? Different types of investments play different roles in your portfolio and may provide varying patterns of risk and return. For instance, does it give you more exposure to domestic bonds or international bonds, or does it target a particular style of equity investing, like value or growth?
What is impacting the performance of your investment?
How does it compare to others like it? For instance, what is going on in the world, in the stock market, or in the industry, that affects returns? Keep in mind that different types of investments do well at different times.
Consider performance and risk
Look at how your fund has performed relative to the benchmark index—as well as similar funds. Recent performance shouldn't be your only metric—consider annual performance in the context of fees as well. Risk is another important dimension—it's important to evaluate the historical risk (variability of returns) associated with a fund's historical return. Risk-adjusted returns can be a useful metric when comparing funds with different levels of risk and/or return.
Read Viewpoints on Fidelity.com: How to start investing
Get help if needed
Don't get discouraged if it seems like a lot of work—target date funds, target risk funds, and managed accounts are options to consider if you don't have the skill, will, and time to manage your investments.
Target date funds can help investors who are investing for a specific goal—for instance, if you're investing for a child's education or for your own retirement. These types of funds are professionally managed and offer a mix of stocks, bonds, and short-term investments appropriate for the timing of your goal. Target date funds gradually become more conservative as your investment goal gets closer.
Target risk funds are similar to target date funds in that they are professionally managed and offer a diversified mix of stocks, bonds, and short-term investments. But the asset allocation won't become more conservative as target date funds do—you buy the fund that reflects the level of stock market risk you're comfortable with and the fund managers work to maintain that level of risk over time.
Managed accounts offer a more customized approach. You get an investment strategy designed for your financial picture along with ongoing management. Managed accounts span a range of services beginning with digital options like robo-advisors that offer an investment strategy based on your goals and preferences with ongoing rebalancing. At the other end of the spectrum, a managed account could include comprehensive financial planning with a dedicated financial advisor. Note that managed account services usually require a fee.
Getting help with your investments could keep your portfolio in good shape to achieve your financial goals. Of course, the do-it-yourself approach works too—as long as you have the inclination, skill, and time to invest appropriately for your goals and time frame.
Whether you choose your own investments or pay someone to help you, saving and investing for your goals takes perseverance and consistency. Seeing your hard work paying off through the years as you get closer to achieving your objectives can keep you motivated and on track.
Next steps to consider
Get an investment strategy and portfolio.
Analyze your portfolio and create a clear plan of action.
Planning, consistency, and discipline can help improve results.