A 5-point checklist for your annual portfolio review

*This content is brought to you by Brenthurst Wealth

By Ruan Breed*

One of the most common rituals we perform at the start of the new year is to reassess and plan for the year ahead. Important family milestones like progressing to a new grade in school often get the most attention, or career and life goals. Or planning the next family holiday might take precedence.

These are clearly important priorities, but they can easily distract us from important tasks like reassessing our retirement plan.

The best way to manage your financial affairs will differ from one person to the next. However, reviewing the following five elements can make the difference between staying on track and trying to get back on track with your retirement goals.

  1. Portfolio performance

The main reason to do an annual review is to see how your current investments are performing. You want to be sure that the returns to date and projected returns will continue to provide for a comfortable retirement.

Leaving your money unchecked could produce losses, or result in missed opportunities that could have provided a better return. However, you also need to look at the bigger picture to avoid short-term reactions to market performance. 

Just take a look at the S&P 500 over the past two years. In 2022, the index recorded a loss of around 19% but this past year produced a positive return of nearly 24%. This comparison contains two lessons: it’s impossible to foretell what markets will do, and working with a qualified advisor can help you make costly investment decisions.

  1. Personal priorities

As mentioned at the beginning, each year brings new challenges, opportunities and risks linked to where you are in life.

It’s easy to understand that your needs are very different when you’re starting a career or setting out on your own. And especially when getting married and starting a family. These major changes demand a corresponding change in investment priorities.

So, your annual portfolio review is a great opportunity to assess how these changes impact your income, expenses, and cash flow. Based on this assessment, you can then make an informed decision on whether you need to rebalance any investments.

  1. Longer-term priorities 

While it may sound like a contradiction, I advocate for doing an annual (short-term) review to ensure that your long-term goals are still within reach.

I think it’s a smart idea to review your investments once a year because our lives, goals, and financial situations change, and market conditions also fluctuate. This is an opportunity to review your portfolio’s performance to check whether it’s still relevant for your current needs, as well as your plans for the future.

I think it’s important to also be prepared for key life moments that will reshape your long-term priorities. Three of the biggest of these moments are marriage, growing your family and receiving an inheritance.

Each of these events will change your current and future priorities in meaningful ways, and that demands a relook at your investments, your goals and whether you’re on track to meet your goals.

  1. Financial situation

Your retirement investments cannot be seen in isolation, because your ability and willingness to invest for the future is based on your current situation.

Therefore, I suggest you also look at the following two indicators of your financial health.

  • See what you’re saving

Do you have a ‘rainy day’ or emergency fund?

Are you saving enough for future expenses?

How much are you saving for future expenses?

  • Interest rates help and hinder.

Lower interest rates can hurt portfolios with exposure to cash and interest bearing investments. 

Even though rates are expected to fall in the coming year, the changes will be small. So, continue to reduce exposure to debt to reduce your risk.

  1. Risk tolerance

The last factor to consider when doing your annual review is where you sit on the risk appetite scale: high, medium or low?

This will be influenced by many factors, including major changes in your life. For example, if you’re single and starting your career, you can be more aggressive with your investment choices because of the long investment horizon. Being willing to ride out the greater market volatility can help you earn higher returns over the long term.

However, if you’re nearing the end of your career, you might not be as comfortable with risking your hard-earned savings close to retirement. So, you might therefore take a more cautious approach and opt for more conservative investments.

Factors to consider when reassessing your risk appetite during your annual review include:

  • Your age
  • How long you plan to invest
  • What sort of goals you’re trying to achieve with your money
  • How much money you’re investing and the size of your portfolio
  • The diversity of your portfolio
  • Your personal comfort level/attitude towards risk

The bottom line is that your future financial security is too important to not be checking where you stand in relation to your goals. Doing so once a year is good enough for most of us, with more frequent reviews only needed in extreme cases.

I advise booking time with your advisor to run through this 5-point checklist. An advisor’s value is not only technical analysis but also professional insights into balancing your portfolio optimally.

The best way to start off 2024 is first to see what 2023 delivered, then you can plan on how to move forward from here. An annual portfolio review is the best way to do just that.

* Ruan Breed is a financial advisor at Brenthurst Stellenbosch and Brenthurst George. [email protected]

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