Constantly checking and meddling with your investments can be harmful and is not recommended. However, one wealth management company has revealed the times when you should take a closer look at your portfolio.
So, when exactly is the right time to review your investments? Let’s explore.
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Why is regularly meddling with your investments a bad idea?
Pay too much attention to your portfolio and you’ll put yourself at the risk of trading on emotions. For example, if stocks suddenly fall, then you may be tempted to ‘panic sell’ to avoid suffering from further falls. This should be avoided as it means you won’t benefit if stocks recover quickly from big falls.
Problems associated with selling due to recent falls are closely related to the pitfalls of trading the news. This should be avoided as markets are typically always one step ahead of retail investors.
For example, if you read a news story that the government is set to announce a brand new subsidy scheme for new-build properties, it’s likely markets will have rushed to buy housebuilder shares before the article was even written!
On a similar note, regularly meddling with your investments means you’re probably taking a short-term approach. When investing, a long-term approach is often recommended. That’s because, while the stock market rises and falls, it generally heads upwards in the long term. When using a long-term strategy, you can sit back and avoid worrying about short-term swings.
Of course, if you’re a day trader, then meddling with your portfolio is likely part and parcel of your investing style. However, if you pursue this strategy, while it’s possible to be successful, be aware that you’re essentially playing a zero-sum game. For more on this, see our article that explores what you need to know about active and passive investing.
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When should you review your investments?
While we’ve touched on the drawbacks of reviewing your portfolio too often, according to Arbuthnot Latham, there are three major circumstances in which you are encouraged to reassess your investments. Let’s take a look at what these major circumstances are.
1. Changes to your family structure
If you’re young and free, then an ambitious, equity-heavy portfolio may be your chosen approach. That’s because in such circumstances you’re likely to have a long time to see your investments grow. In other words, if stocks dip in the short term, time is on your side.
Yet your attitude may change if you have children on the way as you may be more inclined to take a more risk-averse investing approach. This might be because you’ll want to secure your children’s financial future, or perhaps support them through university.
On a similar note, get married and your partner may prefer a different investing approach entirely. So, if your finances become a joint issue, you may wish to change your style for the sake of fairness.
On a more sombre note, reviewing your portfolio may be a good idea should you suffer from poor health, or a family bereavement. This may be especially true if you or a close family member expects a shorter lifespan. In such circumstances, spending your wealth may have greater appeal than long-term investing.
2. Alterations to your work pattern
Due to the pandemic, flexible working is on the rise, as is the number of people cutting bank on their hours to improve their work-life balance. If this applies to you, then it’s likely you’ll be facing a drop in income. Likewise, the same goes for those who reach retirement age.
In such circumstances, it’s probably a good idea to take another look at your portfolio to ensure it continues to reflect your new situation. It is often the case that retirees prefer to hold more bonds than equities in their later years. This is because bonds are seen as lower risk.
3. A changing home environment
Whether you’re upsizing or downsizing, a changing home environment can have a big impact on your need for future income.
As a result, when your home environment changes, it’s often a good idea to review your investment choices. For example, if you are downsizing, you may find you’ve less of an appetite to pursue riskier investments given that your home-focused outgoings are likely to have decreased. Of course, if you’re upsizing, then the opposite will probably apply.
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