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Striking a Balance in Portfolio Monitoring
Investing today is simpler than ever, with investment platforms providing immediate access to your personal finance portfolio on any device, including smartphones. However, just because reviewing your portfolio is easy doesn't mean it should become a daily habit.
Long-term investors should ideally review their portfolios every six months to a year. While the allure of frequently checking your investments is understandable, especially if you're keenly interested in the performance of certain funds or companies, it comes with potential drawbacks. Excessive checking can cloud your long-term investment strategy with short-term market volatility, and possibly lead to hasty, ill-considered financial decisions.
Deciphering the Information on Your Investment Platform
When you do access your investment platform, you'll find an array of details, including the value of your entire portfolio and information about each account you hold—ISAs, junior ISAs, SIPPs, or general trading accounts. Each of these will offer insight into:
- Where your money is invested
- The performance of each holding
- Your investment costs
- The profits earned
Drilling down, clicking on individual holdings will yield a graph charting its performance over time. Keep in mind that an isolated assessment isn't enough. Instead, weigh your investment's performance against similar investments and asset classes. For instance, actively managed funds should ideally outperform market indices, while tracker funds replicating indices like the FTSE All-Share should align closely with them.
Responding to Underperformance
It's not uncommon to find some of your investments falling short of expectations. Remember to keep a cool head during these times. Rapidly switching to higher-performing funds isn't just costly and risky—it doesn't guarantee better future performance either.
Instead of being guided solely by the numbers, recall why you chose that investment initially and whether it aligns with your financial objectives. You should give actively managed funds time to flourish and switch only if they consistently underperform similar funds. If you chose an investment based on thorough research and were satisfied with its initial performance, a period of at least 12 months before making changes is advisable.
Regarding shares that aren't meeting expectations, reflect on the reasons why you acquired them. If you still believe in their long-term potential, patience could pay off. Selling off underperforming shares only makes a loss official. Remaining invested could allow for recovery and subsequent profits.
Making Informed Changes
While being committed to your investments is necessary, it's equally crucial to understand that you're not bound to them if they consistently underperform. Instead of panicking, you might consider monitoring such investments more closely for a while before making a measured decision.
Portfolio reviews should also incorporate an evaluation of your asset allocation. If certain funds have overperformed, they might have tipped your portfolio balance, unintentionally raising your risk levels. In these cases, rebalancing your portfolio by reinvesting profits from successful investments elsewhere could maintain your desired risk profile.
Navigating Volatile Markets
The stock market isn’t a smooth ride. Its fluctuations are a natural part of the journey. Yet, extreme volatility caused by unforeseen “black swan” events, like the 2008 financial crisis or the Covid-19 pandemic, can be unnerving.
During such times, panic-selling can seem like a safe option, but it often leads to locked-in losses and missed recovery gains. Patience during these turbulent times is often rewarded. For example, during the pandemic, the FTSE 100 index dropped drastically before rallying by 9% within a few days.
Investment is Not a Contest
Many beginners shy away from investing because of its perceived complexity and the fear of making mistakes. However, investing isn't a race. Even minor errors or not choosing the absolute best fund or platform won't spell disaster. Getting started, even with modest amounts, is the key. Long-term, patient investing generally yields the most rewarding results, rather than trying to time the market.
Conclusion: Embrace the Long-term Perspective
Investing successfully is about strategic planning, patience, and understanding the risks. While modern investment platforms make it easy to monitor portfolios, frequent checking may lead to reactionary decision-making driven by short-term market volatility. Instead, maintain a disciplined review schedule, interpret your platform data wisely, and be patient with your investments. Remember, in the investing world, knee-jerk reactions seldom lead to fruitful results. Rather, understanding that market fluctuations are part of the journey, maintaining a level head during volatile periods, and embracing a long-term perspective can pave the way to achieving your financial goals.
