How to review your investment portfolio?

In my experience, I see too many people neglect their portfolios for too long. The investment industry has preached the merits of buy and hold for a long time but people must know that buy and hold does not mean ignore your portfolio.

Sometime people go to great lengths to set up an investment plan either with the help of a financial advisor or doing it on their own. The problem is many of these plans are put on autopilot with little to no management. A portfolio needs to be managed and reviewed from time to time. Take care of your money and it will in turn take care of you.

Here’s a list of a few important things to help you know how to review your investment portfoliofrom time to time.

Portfolio mix

Probably the most important aspect of a portfolio is diversification. Contrary to popular belief, diversification is not the number of different investments that you own. Instead there is a science to diversification called Asset Allocation.

Related article: Understanding asset allocation

The key to portfolio diversification is to have an intentional mix as opposed to an accidental mix. Everyone has a mix of investments. The question is whether that mix is intentional or accidental. For too many people their mix is accidental as it comes from the “Wing it strategy.”

If you have a mix in place, then you can rebalance the portfolio from time to time. As you will see below,rebalancingis a very powerful strategy to prudently manage a portfolio.

Personal rate of return

I’ve seen some portfolio reviews and one of the problems I see over and over again is too many people focus on investment returns as opposed to investor returns. Investment returns is what you see when you look in the paper or go to any online data site like Morningstar or Fundlibrary. They will show you the returns of different investments. The problem with these returns is they do not tell you what you earned. You can have two different investors who own the same investment but have different experiences with that investment and as a result, different returns. It all depends on when you buy that investment. Investment returns show the returns of that investment for a specific period of time which is really useless to the investor. Instead, every investor needs to know their personal rate of return. Many statements will show this but not all. If not, it’s something you need to know. If you are working with an advisor, it’s something you should demand.

Risk in the portfolio

Portfolio risk is an area that people often neglect simply because they tend to focus on investment performance. Understanding and appreciating risk will help you become a better investor. Failure to appreciate risk, can be a significant reason why investors do not attain their long term investment goals.

The biggest challenge to understanding risk is there is a disconnect between how the industry defines risk and how the investor defines risk. The industry often defines risk as volatility where the investor defines risk as chance of investment loss.

The bottom line is investors need to review their personal view of risk. I’ve often said investors need to look at both risk tolerance and risk capacity. As part of any portfolio review, you also need to look at their investments and whether the investment risk matches their tolerance and capcaity for risk. There are many ways to measure investment risk.

Related article: Different ways to asses risk

Know the fees you are paying

Fees matter and every investor needs to know what they are paying in fees. I’ve run into too many people who say they are not paying anything in fees or they do not know how much they are paying in fees. The problem in the investment industry is most fees are imbedded and paid by the investment as opposed to paid by the investor. As an example, in a mutual fund, your returns are posted net of fees (after fees are taken off). Let’s say you get a 5% return on your statement. That really means the investment would have earned 7.5% total return but after the 2.5% fee was deducted, it left the investor with 2.5%. Because the investor does not pay for the fee directly, it can be challenging to know what the fees are all of the time.

Related article: Investors need to pay attention to the fees they are paying.

Rebalance the portfolio

Most people would agree that BUY LOW, SELL HIGH is an effective way to make money. The problem is it’s very challenging because you never know when high is high or when low is low. The other problem is most people are led to believe that buy and hold is the best strategy to managing a portfolio but buy and hold ignores one of the key components to making money and that’s the sell side of the equation. In my opinion, rebalancing is a systematic approach to buy low, sell high. When reviewing a portfolio, it is very important to know if rebalancing is happening in the portfolio.

Related article: The art an science of rebalancing

This is no an exhaustive list but hopefully represents some of the key aspects of a portfolio that needs reviewing from time to time. Do you have any other suggestions on what needs to be reviewed in an investment portfolio?


  1. Sean Cooper

    Excellent article, Jim. I wish I didn’t have to use Preet’s rate of return spreadsheet to figure out of my personal rate of return. Call me a skeptic, but it’s like investment companies want to hide it from the average investor, yet it’s what we all want to know.

  2. Marko

    Hello Jim,
    Great article! I wish that more people would follow your advice. I think that if you consider yourself a passive investor rather than an active one, it is important that you review and rebalance your portfolio. I’ve found that people only review their portfolios once per year if at all – when their planner or advisor calls them to make their annual RSP contribution. Unfortunately, more often than not, this eventually turns into clients saying things like “Can’t I just mail you the check?” or “I’ll drop in for a second – just do the same as last year!” and no annual review is completed on their portfolio. This is potentially dangerous because there are many events that are in people’s lives that may call for higher or lower risk/volatility. As a former bank advisor I used to say; “We are investing together, this is not the banks money, this is not my money, this is yours and I’m just here to help you invest it and advise you along the way. I need you to understand what you are invested in and schedule meetings for review.”
    Saying that, I’ve found some people to be excessively greedy too. Some clients think that bull markets will never end and that their portfolios are invulnerable to eventual market corrections. I’ve had clients that look at the returns in specific sectors, such as precious metals, and say: “Why didn’t you get me in on that gold rush? My friend made thousands!” This is crazy – hindsight is 20/20. Nobody knows what the hottest sectors of the market are going to be. Look at the returns on gold during the ‘80’s and ‘90’s. It’s best to invest in a diversified approach. You may not make the highest return in the market, but you protect yourself from the lowest return in bad years.

  3. Stephanie

    Hi Jim,

    My name is Stephanie and I’m from TD. I couldn’t agree with you more, that a strategy of ‘buy and hold does not mean to ignore your portfolio”. Whether you’re a self-directed investor or work closely with an advisor, it’s important for everyone to do an annual review of their investments. Not only does it give an opportunity to re-evaluate economic conditions, but it should also take into account any significant life changes that have happened over the past year – such as getting married, having a baby, a sudden death etc. These types of life events may trigger changes to financial priorities, so it’s important to capture them in the annual review as it may affect the asset allocation.

    Great article – I’ve enjoyed reading your blogs!

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