Evaluate Your Investments
Just because you have all your finances in order now doesn’t mean you can sit back and ignore your investments indefinitely. Personal situations change and the market changes, so a periodic financial review makes good sense.
A four-point review
Here are four important things to evaluate about once a year:
1. Mind-set − Ask yourself whether your investment goals, your
ability and willingness to handle risk or your investing timeframe have
changed. If they have, consider changing your investment choices
2. Your investments’ returns – Compare your investments’ performance to other similar investments. An easy way to do this is to use a related benchmark index for comparison. Three popular indexes are the S&P 500 Index1 (large company stock index), Russell 2000 Index2 (small company stock index) and Wilshire 5000 Equity Index3 (large and small company stock index).
When reviewing market index performance using this method, you still have to keep in mind that:
- Market indexes are not managed, so they do not reflect the deduction of any investment fees or expenses
- Market indexes are not investments you can purchase or invest in
- Market index performance is no indicator of how your individual investments performed in the past or how they will perform in the future
- Most investments will have down years now and then, so look at your investments’ returns over multiple years.
3. Your investments’ styles – Look at prospectuses or other product materials to see how your money is invested. Has the investing philosophy subtly shifted from growth companies to undervalued companies or from small to medium-size companies? If so, you may want to shift your money to investments that are consistent with the investment styles you originally chose.
4. Your asset allocation – This is the mix of your investments among investment categories such as stocks, bonds and cash equivalent investments. The mix can change over time, depending on each investment’s performance. When one category performs better than others, its assets grow at a faster rate, resulting in a higher percentage of assets allocated to that category. When this happens, you might want to shift your investments among the categories to return to your earlier preferred investment mix.
Asset allocation is an investment strategy to help you diversify your portfolio and mitigate investment risk. It does not guarantee a profit or protect against loss in a declining market.
Be sure to consult your investment professional regarding your personal situation and to obtain a current prospectus.
1 The Standard & Poor’s Index is an unmanaged index of 500
widely held stocks of large U.S. companies that gives a broad look at how
the stock prices of large U.S. companies have performed.
2 The Russell 2000 Index is an unmanaged index of approximately 2,000 companies with small market capitalizations relative to the market capitalizations of other U.S. companies. Small company underlying funds involve increased risk and volatility.
3 The Wilshire 5000 Index is an unmanaged index that measures the performance of all U.S.-headquartered equity securities with readily available price data.