Just like our health check-up, reviewing our portfolio is also very important. We should keep ourselves updated and informed about our portfolio. The value of investments change due to numerous factors, e.g., the market volatility and uncertain market scenarios, among others.
Every individual works hard to earn money, and if the appropriate measures are not taken care, the hard earned will get exhausted, so it is very important to review your portfolio.
An investor puts a lot of their time and energy to create a portfolio as per his needs, goals, risk appetite, and time horizon. Creating a portfolio is just one part of the story. Once the portfolio is created; it is important to review the same at regular intervals.
The process of review includes determining if the portfolio is still consistent with the risk tolerance and investment objectives or goals. The review process also helps one decide whether there is a need to rebalance the portfolio to the desired asset allocation.
There is also a need to review if your goals have changed or your income, expenses, assets or liabilities s might have changed. In such cases, the portfolio strategy or asset allocation may need to be modified.
How portfolio review helps:
- Evaluating performance: Reviewing your portfolio gives you the opportunity to assess the performance of your investments and determine if weeding out is required. The process also helps you assess whether your investments are positioned to helping you achieve your financial objectives .
- Identifying risks: Reviewing the portfolio assist us in identifying the potential risks associated, such as concentration in some asset or industry or a single investment avenue. This helps you make changes to mitigate or manage the risks.
- Rebalance the portfolio: The market value of investments fluctuate over time, causing the portfolio to be lopsided. In such a situation, the portfolio must be rebalanced in order to restore the desired balance.
The portfolio review helps us keep the portfolio updated such that it is best positioned to help one achieve the financial goals.