Does Your Investment Portfolio Need A Spring Cleaning
Spring is here. Time to air out the house, wash the curtains, clean the windows, and give your investment portfolio more than just a once-over. That's right, you need to roll up your sleeves and make sure your retirement investments are in good order. Here are a few tips on how to tackle the job.
Dust Off Your Total Return
Don't ignore or discard any investment reports you receive. You need to take a look at your investments' total returns. In addition to reviewing recent performance, look at performance over longer periods of time. Normally, total returns for the previous quarter and for one- and five-year periods are available.
Sweep Up with an Index
An index is a good way to find out if a portfolio has been collecting dust bunnies. If you compare a portfolio's return to the return of its benchmark index, you can get a good idea if the portfolio's performance is on track. If a portfolio's total return is consistently much lower than that of its benchmark index, it may be time to consider switching investments.
Polish Up Your Real Rate of Return
Your total return does not take the inflation rate into account. So, you also need to figure out your real rate of return. Once you have subtracted inflation from your total return, you will know how well your investments have performed in real terms.
Don't Expect a Spotless Performance
You are bound to experience periods of less-than-stellar performance from your investment portfolio. However, as a retirement investor, you may have a long-term time frame. Temporary short-term performance fluctuations are common in investment portfolios. If a portfolio has quality investments that reflect your investment style and goals, it may be worthwhile to give it a chance to improve performance before deciding to make a switch.
Organize Your Objectives
Spring is a good time to take a look at your investment goals. If your life has changed significantly, your risk tolerance also may have changed. As you get closer to retirement, you may find that you want to move some of your money into more conservative investments to help preserve the value of your account.
Once you get your financial portfolio all spick-and-span, you'll be in a good position to "clean-up" during your retirement.