Your Annual Investing Checkup—in 5 Painless Steps

Allison Kade

Fidelity There are certain things that we just need to do every so often: Car tune-ups. Cleaning out the gutters come spring. Regular visits to the doctor. And, you guessed it, investment portfolio check-ins.

LearnVest certified financial planner™ Ellen Derrick likes the metaphor of a trip to the pediatrician as a kid: Rather than view your investments as a grueling task that requires tackling, think of it as a friendly checkup instead. You’ll get in and out—and if you’re especially good, maybe you’ll even get a lollipop.

In the same way that a physician would take you step-by-step through a yearly physical, we asked Derrick to walk us through the basics of an annual investing checkup.

1. Look at the Big Picture

One of the first things that your doctor will do is assess your basic health, including your blood pressure, temperature and weight. “In investing terms,” Derrick says, “this would be the equivalent of taking a snapshot of your overall picture. Has your income or job changed? Has your family grown or shrunken?”

The first step in your investing checkup is to think about how your situation and goals have changed—and what that means for your portfolio. For example, Derrick says, “If you’re now making more money than you were last year, perhaps you should increase your monthly retirement savings accordingly.”

2. Address Lingering Problems

Next, your doctor will probably ask about specific health concerns. You can do the same for your portfolio by looking for investment red flags. “If you invested in a fund or a stock that hasn’t performed well,” Derrick says, “ask yourself whether it’s a symptom of a bigger problem or just a temporary flare-up.” If you had money to invest today, would you consider buying the same investment? If the answer is no, she says, then perhaps you should consider taking the loss and moving on to something else.

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Of course, that’s not to say that you should rush to sell everything in your portfolio that’s decreased over the past year. It’s perfectly normal for investments to have ups and downs, which is why you shouldn’t buy and sell all of the time—it just encourages emotional trading. Instead, aim to give your investments a serious look once a year or so, giving you the right amount of distance to make rational decisions rather than in-the-moment ones.

3. Consider “Generic” Options

“In the same way that your doctor might review your current meds to see if generic, less-expensive options are available, you can do the same with investments,” says Derrick. For example, you may own shares of a mutual fund with a 1.5% expense ratio (the fee that the fund charges for administration, management and advertising). At that rate, if you invested $1000, you’d have approximately $15 in fees deducted from your return. But if you invested your money in a fund with an expense ratio of 0.2%, you’d only have $2 in fees deducted from your return. Over the long term, all of these little fees can seriously add up.

  • Camille Gaines

    I love the way that this article tied investing to health check up’s! I do think that sometimes it makes sense to invest more of your overall portfolio in an obviously undervalued asset. Thanks Allison.