How Often Should You Review Your Investments?

Hi All,

Welcome to a new week!

Today’s posting is on how often one should review ones’ personal finance situation.

The answer is: there aren’t really any set rules. But, here are some thoughts.

1) It makes sense to review when economic conditions change drastically. For example, during last year’s stock market troubles, it would have been sensible to review any mutual funds, ETFs or individual stocks you held to determine if they were materially adversely affected by the downturn.

Similarly, if you are holding bonds, you might consider keeping an eye on the yield curve. The yield curve is basically a graph showing the amount of interest paid (yield) of bonds of the same quality over time (see the graph below). When the curve gets inverted (e.g. if long term rates are lower) then that’s a signal that you might want to think about reevaluating any long term bond holdings you have. Some people also think the inverted yield curve is a signal for upcoming economic recessions.

2) If your personal situation changes drastically you might reevaluate. For example, if you lose your job, you could to think about moving more of your assets into cash. Another thing you should start concentrating on is living frugally and saving money on anything you can. Or, if you are having children you might think about reallocating more funds to income producing assets. If one member of your family leaves the labor force to take care of the children, you’ll need extra money. Basically, when your life circumstances change, review your financial picture.

3) Quarterly review. If you want a more hands on approach to your bucks, consider reviewing your net worth quarterly. This will give you a chance to tally everything up to see if your goals are being addressed. By reviewing your net worth, you’ll also get a chance to investigate your overall wealth picture. This is key because you’ll see what investments aren’t working vs. what is making you money. Doing this quarterly is a good idea because you won’t get overwhelmed with keeping the books, and you rectify any problems in a timely manner. You want to make sure you are building wealth as much as possible, but you don’t want to spend hour and hours on this every week.

Quickly summarized, consider reviewing your financial situation when:

1) The economy changes drastically.
2) You experience significant personal change.
3) If you want more oversight, consider a quarterly review.

Happy Investing!

Best,

James