By: Allison Kade


There are certain things that we just need to do every so often: Car tune-ups. Cleaning out the gutters come spring. Regular visits to the doctor. And, you guessed it, investment portfolio check-ins.

LearnVest certified financial planner™ Ellen Derrick likes the metaphor of a trip to the pediatrician as a kid: Rather than view your investments as a grueling task that requires tackling, think of it as a friendly checkup instead. You’ll get in and out—and if you’re especially good, maybe you’ll even get a lollipop.

In the same way that a physician would take you step-by-step through a yearly physical, we asked Derrick to walk us through the basics of an annual investing checkup.

1. Look at the Big Picture

One of the first things that your doctor will do is assess your basic health, including your blood pressure, temperature and weight. “In investing terms,” Derrick says, “this would be the equivalent of taking a snapshot of your overall picture. Has your income or job changed? Has your family grown or shrunken?”

The first step in your investing checkup is to think about how your situation and goals have changed—and what that means for your portfolio. For example, Derrick says, “If you’re now making more money than you were last year, perhaps you should increase your monthly retirement savings accordingly.”

2. Address Lingering Problems

Next, your doctor will probably ask about specific health concerns. You can do the same for your portfolio by looking for investment red flags. “If you invested in a fund or a stock that hasn’t performed well,” Derrick says, “ask yourself whether it’s a symptom of a bigger problem or just a temporary flare-up.” If you had money to invest today, would you consider buying the same investment? If the answer is no, she says, then perhaps you should consider taking the loss and moving on to something else.

Of course, that’s not to say that you should rush to sell everything in your portfolio that’s decreased over the past year. It’s perfectly normal for investments to have ups and downs, which is why you shouldn’t buy and sell all of the time—it just encourages emotional trading. Instead, aim to give your investments a serious look once a year or so, giving you the right amount of distance to make rational decisions rather than in-the-moment ones.

3. Consider “Generic” Options

“In the same way that your doctor might review your current meds to see if generic, less-expensive options are available, you can do the same with investments,” says Derrick. For example, you may own shares of a mutual fund with a 1.5% expense ratio (the fee that the fund charges for administration, management and advertising). At that rate, if you invested $1000, you’d have approximately $15 in fees deducted from your return. But if you invested your money in a fund with an expense ratio of 0.2%, you’d only have $2 in fees deducted from your return. Over the long term, all of these little fees can seriously add up.

Another way to save? Most brokerages charge a transaction fee each time that you buy or sell an investment, but many also offer “no-transaction-fee” mutual funds. You should choose funds based on what’s best for your needs, but aim for those with no transaction fees whenever possible. Case in point: If your brokerage charges $17 whenever you make a mutual fund trade, you could easily save more than $100 a year by choosing no-transaction-fee funds. You can usually search for such funds through your brokerage’s online mutual fund screening tool.

If you’re in the market for a new fund, you’ll want to compare apples to apples. For example, if you have a fund that invests in large-cap stocks, you should look for a replacement that invests similarly. Just remember that if you’re investing in a taxable brokerage account, you could face steeper capital gains taxes if you sell an investment after holding it for less than a year.

4. Maintain an Optimal Weight

“Your doctor usually gives you a speech about improving your health,” Derrick says, “and that often involves paying attention to your weight—exercising more, eating better, etc.” Similarly, you should “make some overall adjustments to get your portfolio back to its optimal weight” by re-balancing your portfolio once a year.

When you start investing, you should have a game plan that’s tailored to your specific goals, appetite for risk and how much time you have before you’ll need your money back. Maybe your original plan was to allocate half of your money in stocks and half in bonds, but after a year your stock investments have grown, so you’re out of whack—60/40 instead of 50/50. If your goals are the same, and your plan hasn’t changed, you may want to consider selling some stocks to get yourself back to that 50/50 game plan.

Now we know that this can be hard psychologically. After all, if your stocks are killing it, why sell now? We talk about how the emotional burden can be even harder when the stock market is way up or down, but Derrick points out that this is an important lesson: “Re-balancing is all about buying low and selling high. We mentally don’t like to sell part of an investment that has done well and add more money to an investment that hasn’t performed.”

She adds that you should avoid the temptation to say, “Maybe I should just change my plan and leave things the way they are since they’re doing so well!” You need to remind yourself that you made that plan when you were being rational and considering your long-term goals, so don’t change it now over emotional reasons. “It’s like cutting back on chocolate cake and eating more lentils,” Derrick says. It might not be fun, she notes, “but it’s better for you overall.”

5. Feel Good About Yourself

When you were a kid, the pediatrician may have given you stickers or toys if you were good. Re-balancing your portfolio shouldn’t feel like drudgery, so if you need to give yourself a reason to get excited, follow the same model.

Maybe this means sharing your accomplishments by joining a supportive money club or giving yourself a little splurge. (Here’s how to splurge the right way.) Did you save a few bucks on transaction fees by switching mutual funds? Perhaps you can use part of those savings to treat yourself to a nice bottle of wine or flowers. Or you could always ask one of your friends to give you a gold star sticker.

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