6 Year-End Investment Tips For A Better New Year

As the end of the year approaches, most people start to think about the resolutions they made earlier in the year and come up with new resolutions for the New Year. An important thing that every investor should do is give their portfolio a thorough performance review.

By performing an annual review, you can keep your investment on track to meet your financial goals. Sometimes our financial goals can change due to circumstances, and now is a great time to realign your investment portfolio accordingly.

If you have a financial advisor, it is essential to discuss the performance of your investments over the past year with them. Performance can mean different things to different people, depending on their goals and financial needs.

If you focus on long-term retirement savings, your portfolio may define good performance differently because it is geared towards long-term growth.

Whatever your investment goals, it’s time to clean up your portfolio. So, what cleanings should you do?

1. Review your financial goals

As we go through different phases of life, our financial needs and goals change as well. Your financial goals can change between when you were single, getting married, or even having a child.

If your goals or concerns have changed in the past year, you will need to identify this when you review your portfolio. Make this clear to your financial advisor at your meeting, if you have one.

See if the potential return and risk match your new goals. However, keep in mind that past performance is no guarantee of future results.

2. Rebalance your portfolio

Gaining insight into your portfolio’s past year’s performance is different from your monthly monitoring. You will be able to see the overall performance of a particular fund or asset class over the past year.

If an asset class has done exceptionally well and now represents a larger percentage of your asset allocations, you might want to rebalance it to maintain diversity. You can do this by selling some of that asset class and using that money to buy other types of investments that you think are able to bring your overall allocation back to an appropriate balance.

You can start with having a properly diversified portfolio, but as your money grows the diversification can become skewed, and now is a great time to rebalance everything however you see fit.

3. Change course, if necessary

What if your wallet isn’t performing as well as expected? When you take a look at your portfolio, you can see how well certain funds or asset classes are underperforming, which can derail your financial goals.

You may want to reconsider whether your investments match current market conditions.

You don’t have to shake everything up and go back to square one. However, when you are looking at your portfolio, now is a good time to determine whether you should cut your losses or change course.

However, investing can be a game of patience. If you are the type of investor who invests consistently, in the right stocks, you may consider patiently holding onto your investments and you may find that your investment generates exceptional returns. Knowing when to go out and when to be patient is important. Take a disciplined approach to investing and keep a long-term view in mind.

4. Average cost in dollars

The new year brings new hope. After reviewing your portfolio’s previous performance, you may want to expand or venture into new areas of investment in 2015. This can be risky as you are likely to enter uncharted territory.

To reduce some of this risk, you may want to consider using average dollar costs when purchasing investments. Instead of putting a large lump sum in a fund or a stock, buy at regular intervals in a fixed amount to help protect your portfolio from price fluctuations.

Investing a fixed amount of money regularly works best if you are at it for the long term and allows you to spread the risk by not putting a huge chunk of your money into one investment at the same time. Today there are many ways for investors who want to venture out to start investing with a smaller amount. However, you may end up with a lower overall 12-month average price per share with an average cost in dollars.

5. Diversify your portfolio

Examining your portfolio also allows you to see how your investment behaves collectively instead of just looking at a particular fund or stocks. If your overall portfolio is not performing as you would expect, it may not be sufficiently diversified for the current market situation.

Diversifying your portfolio not only means placing your money in different asset classes, but you also need to diversify it more within each class. For example, when you gain experience and start building up your cash reserves, you can start to diversify your portfolio. Common options include stocks, property, trust units and cash.

By doing this, you can protect your wallet from the ravages of a single industry. Aim for a wide range of fixed income investments with varying maturities, markets and sensitivities to changes in interest rates and inflation.

6. Check your costs and fees

Every investment costs money. However, it doesn’t make sense if the costs and fees turn your returns into losses.

So how do you manage costs while diversifying your investments? Calculate your returns after deducting your investment costs to see the net return. Discover all the expenses that are built into each investment choice: management fees, expense ratios, sales charges and more.

If you use the services of a financial advisor, also include the costs incurred in calculating your return.

There is nothing wrong with hoping for the “best” from your investments, but you might get into trouble if you leave your investment to chance. Have realistic expectations and make systematic, calculated decisions about your investment.

Even if you’re not going through a major life-changing moment, it still pays to review your portfolio at least once a year.

This article was first published on December 10, 2014 and has been updated for freshness, accuracy and completeness.

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Jothi Venkat

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