Introduction
The world of investing can be overwhelming, and it’s not uncommon to hear people say, "I just want to leave my investments alone to look after themselves." After all, the idea of setting up an investment strategy and watching it grow passively sounds appealing. But the reality is that investments require regular attention, adjustments, and strategy shifts to keep them aligned with your goals.
If you’re among those wondering if you can simply let your portfolio run on autopilot, this article is for you. Steve Rowe, Chartered Financial Planner explores why leaving investments alone is often not enough, and why regular monitoring and rebalancing are essential to long-term financial success.
The Importance of Rebalancing Your Portfolio
Investing isn’t a ‘set it and forget it’ strategy. Over time, markets fluctuate, asset classes grow at different rates, and personal goals evolve these factors make it essential to monitor your investments.
Rebalancing is the process of realigning your portfolio to ensure it reflects your original asset allocation and risk tolerance. If you don’t regularly rebalance, you could end up with a portfolio that’s riskier or less suited to your goals than when you first set it up.
While passive investing strategies like index funds are designed to be relatively low-maintenance, they still require periodic checks. Rebalancing ensures your portfolio stays on track and your investments continue to work for your financial future.
How Often Should I Check My Investments?
The frequency of checking your investments depends on your strategy, risk tolerance, and personal financial goals. While there’s no one-size-fits-all answer, there are a few common approaches:
Annual Reviews
For most investors, reviewing their portfolio once a year is sufficient. This gives you time to assess performance, make any necessary adjustments, and ensure everything is still aligned with your long-term objectives.
Read our article - How to Ensure Investment Portfolios Remain Aligned with Goals
Quarterly or Semi-Annual Reviews
If your portfolio is more volatile or you have specific short-term goals, you may prefer to review your investments more often quarterly or semi-annually. This is especially useful for portfolios with higher-risk assets like stocks, where market movements can cause significant changes in asset allocation.
Avoid Over-Checking
While it might be tempting to check your investments every day or week, research from Vanguard shows that rebalancing too frequently can result in higher transaction costs without delivering better returns. It’s best to take a long-term view and stick to your rebalancing schedule.
Rules Based Rebalancing
Investments in ‘fund of funds’ mean you can get a fund with different funds within it and the fund manager does this for you, within a set remit. Or, you can have things rebalance based on ‘rules’ where asset allocations are reset under predetermined circumstances. This may be time based (e.g. annually) or tolerance based (when portfolio proportions have moved by a set amount). Rules based rebalancing means you avoid your emotions or behavioural biases (or those of the asset manager) affecting your investment returns.
Should Investing in the Stock Market Be Left Alone?
The stock market is an essential part of many investment portfolios, offering growth potential over the long term. However, leaving stock market investments completely unattended can lead to unwanted outcomes.
Why You Can’t "Set and Forget" with Stocks
Stock prices fluctuate regularly, and different sectors perform at varying rates. While equities can provide strong returns, they can also experience periods of volatility that could shift your portfolio out of alignment. Regularly checking and rebalancing your stock investments ensures you aren’t overexposed to any one sector or individual stock, which could amplify risk.
"The key to maintaining a portfolio that remains aligned with your goals is regular review and rebalancing. A portfolio is not a ‘set and forget’ investment—market conditions change, and so should your strategy."
Keely Woods, Chartered Financial Planner
Should I Manage My Investments Myself or Delegate to a Professional?
Managing your investments yourself can be rewarding, but it’s not without challenges. Many investors choose to handle their portfolios, but there are clear benefits to seeking professional advice or using managed services.
- DIY Investing - With modern tools and platforms, DIY investing has become more accessible. Many investors manage their portfolios using apps, websites, and automated tools (like robo-advisors). This allows for greater control over individual investments and the flexibility to adjust strategies based on personal research.
- Delegating to a Professional - On the other hand, working with a financial advisor brings expertise and peace of mind. A professional can tailor your portfolio based on your specific goals, risk tolerance, and time horizon. For those with more complex financial situations such as multiple income streams, real estate, or business ownership professional advice ensures investments are optimally aligned with your overall financial strategy.
The Impact of Market Volatility on Long-Term Investments
Market volatility can make long-term investing feel daunting, but it’s important to remember that fluctuations are a normal part of the process. When markets experience downturns or upturns, your portfolio may drift from its target allocation.
How Volatility Affects Your Portfolio
If you’re not actively monitoring your portfolio, you could be caught off-guard by these shifts. Rebalancing after periods of volatility ensures that you don’t become overly exposed to risk or underexposed to growth opportunities.
How to React to Volatility
While it’s tempting to react to market fluctuations, it’s important to stay disciplined. A portfolio designed for long-term growth will weather market downturns, and by rebalancing, you can take advantage of undervalued assets that may present buying opportunities.
How to Avoid Costly Mistakes When the Market is Down
One of the biggest mistakes investors make is panicking when markets experience downturns. It’s easy to become emotional when you see the value of your investments fall, but acting impulsively can harm your long-term goals.
Strategies to Stay Calm
- Stick to Your Plan: Avoid making decisions based on short-term market movements. Remember why you chose your investment strategy in the first place.
- Review Your Goals: If your risk tolerance or goals have changed, rebalancing gives you the opportunity to adjust your strategy to reflect these changes.
- Don’t Panic Sell: Selling investments during a downturn locks in losses. Stick with your long-term plan and adjust only when necessary.
When Should I Sell and When Should I Hold?
One of the most common questions investors ask is whether they should sell investments during market dips or hold onto them for the long term. The answer often depends on your individual goals, the performance of the asset, and whether it still aligns with your overall strategy.
When to Hold: If your investment is still aligned with your risk tolerance and long-term goals, and if it’s likely to recover from market fluctuations, it’s best to hold.
When to Sell: You may want to sell an investment if it no longer fits your strategy or if it has significantly underperformed over time. However, before making any decisions, it’s important to assess whether this shift aligns with your long-term goals.
The Role of Automation in Portfolio Management
For investors looking for a more passive approach but still wanting to stay on top of their portfolios, automation is a great solution. Robo-advisors and investment platforms offer automated portfolio management based on your risk tolerance and goals.
Automated tools regularly review and rebalance your portfolio, ensuring it remains aligned with your goals without you needing to do it manually. This can be an ideal middle ground for investors who don’t want to actively manage their investments but still want peace of mind that their portfolio is performing optimally.
Summary
Investments are not a “set and forget” process. To stay on track with your financial goals, it’s essential to review and rebalance your portfolio regularly. Whether you choose a time-based approach, a threshold-based strategy, or adjust for life changes or market conditions, rebalancing helps ensure your portfolio remains aligned with your objectives.
Investing requires attention, discipline, and, if necessary, professional guidance. The key is to stay calm during market fluctuations, avoid emotional decisions, and make informed adjustments when needed. With the right approach, you can manage your investments and ensure they continue to work for your long-term success.
If you're unsure whether your portfolio is still aligned with your goals, or if you'd like to discuss strategies for effectively managing market volatility, our team is here to help. Feel free to get in touch for guidance tailored to your unique financial situation.
Disclaimer: This article does not constitute financial advice. We recommend that you speak to a qualified financial planner for advice tailored to your individual circumstances and goals. Financial markets may go up or down, and you are not guaranteed a return on your investment. Past performance is not necessarily a guide to future performance.
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