Maintaining an investment strategy that accurately reflects your current life situation, goals and risk tolerance is essential for long-term financial success. Life is dynamic, with numerous changes such as career transitions, homeownership, family expansions and fluctuating economic conditions affecting your financial situation. Regular reviews of your investment strategy can ensure that your portfolio continues to serve your evolving needs and objectives. This article discusses the importance of conducting periodic investment strategy reviews and outlines steps to effectively align your investments with life's changes.
ESTABLISH A REVIEW SCHEDULE
Setting a regular schedule for reviewing your investment strategy is crucial. An annual review is standard, but you may opt for more frequent reviews based on your specific situation or in times of significant market volatility. Scheduled reviews help you proactively adjust your portfolio, rather than reacting impulsively to market highs and lows.
ASSESS CHANGES IN YOUR FINANCIAL GOALS
Life events such as marriage, the birth of a child, purchasing a home or nearing retirement can significantly alter your financial goals and needs. Each review should start with an assessment of how your goals have changed since the last review and how these changes impact your investment strategy. For instance, as retirement approaches, you may shift towards more conservative investments to preserve capital.
EVALUATE YOUR RISK TOLERANCE
Your appetite for risk can change due to life circumstances, financial market conditions or simply as you age. Regularly reassessing your risk tolerance ensures that your investment strategy remains aligned with your comfort level regarding market fluctuations and potential losses. Adjustments may be needed to either increase or decrease your portfolio's risk profile.
REVIEW ASSET ALLOCATION AND DIVERSIFICATION
Asset allocation – how your investments are divided among different asset classes – should reflect your current risk tolerance and financial goals. A regular review of your asset allocation can identify opportunities to rebalance your portfolio, ensuring it remains diversified and aligned with your objectives. Market movements can skew your intended asset allocation, making rebalancing a critical aspect of portfolio management.
MONITOR INVESTMENT PERFORMANCE
Evaluate the performance of individual investments and your portfolio as a whole. This involves comparing the performance against relevant benchmarks and considering whether each investment continues to meet your expectations and contribute to your overall strategy. Poorly performing investments may need to be replaced, while outperformers may require rebalancing to avoid overexposure.
CONSIDER TAX IMPLICATIONS
Investment decisions can have significant tax implications. Regularly reviewing your investment strategy with a tax perspective can identify opportunities for tax-efficient investing, such as utilising tax-advantaged accounts or employing strategies like tax-loss harvesting. Consulting with a tax professional can offer insights into optimising your investment strategy for tax efficiency.
UPDATE ESTATE PLANNING DOCUMENTS
Major life changes can also affect your estate planning needs. As part of your investment strategy review, ensure that your estate planning documents, such as wills, trusts and beneficiary designations, are up to date. This ensures that your investment decisions are consistent with your estate planning goals.
SEEK PROFESSIONAL GUIDANCE
The complexity of financial markets and investment products can make regular reviews daunting. Seeking guidance from a financial adviser can provide expert insights into adjusting your investment strategy in line with life changes, market conditions and financial goals. Professional advice can be invaluable in navigating complex decisions and optimising your portfolio for long-term success.
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