Whether you’re holding your investments in an IRA, a taxable brokerage account, or a combination of both, it’s important to keep tabs on your portfolio to make sure you’re happy with its performance. But if these signs apply to you, it means you may want to reassess your approach to investing ASAP.
1. Your portfolio is consistently losing money (outside of market declines)
It’s one thing for your portfolio to show a loss on screen at a time when the broad market is down. But if you keep seeing losses in your portfolio while the broad market is doing well, then unfortunately, the problem is probably you — namely, the investments you’ve chosen.
If that’s the case, take a look at your various stocks and figure out which ones are the biggest losers. Then, consider dumping them strategically to make room for stocks that are likely to deliver better performance.
One benefit of selling stocks at a loss is that you can use that loss to offset capital gains. So if, for example, you take a $5,000 hit on a given stock but there’s another stock you recently sold where you profited by $6,000, your loss will whittle your gain down to $1,000 that you have to pay taxes on.
2. Your portfolio isn’t gaining value through the years
Over the past 50 years, the stock market’s average annual return has been 10%. Of course, this doesn’t mean that the market has risen by 10% year after year, every year. Rather, that 10% accounts for years of good performance as well as years of losses.
Your investment portfolio might lose value from one year to the next. And that’s not necessarily something to panic over. But if your portfolio’s growth has been stalled, and you’ve been investing for a good number of years but have yet to see any notable gains at all, then it may be time to reassess your strategy.
Perhaps your portfolio isn’t gaining nicely because you’re invested too conservatively. Or, it could be that you’ve chosen specific stocks that just aren’t gaining momentum. Either way, it may be time to shift around some assets.
3. Your portfolio is unbalanced
It’s important to have a portfolio that’s nicely balanced and diversified. If you don’t, you might face serious losses during a stock market downturn. Plus, your portfolio’s growth might stagnate.
If your portfolio largely consists of stocks within the same industry, or, worse yet, just a couple of stocks that comprise the bulk of your assets, then it’s probably time for a change. It’s important to set yourself up with a more balanced mix of stocks so you’re not vulnerable to big losses if a specific sector of the market takes a beating.
One way to add some instant diversification to your portfolio is to put money into an S&P 500 ETF (exchange-traded fund). That way, you’re effectively investing in 500 different stocks, only without having to buy shares of each one individually.
If you’re making an effort to set money aside to invest, you want your portfolio to work for you and better your financial picture. If that’s not happening, make changes. Sell off underperforming assets and broaden your investment mix. You may also want to sit down with a financial advisor who can help you choose investments that are conducive to meeting your long-term goals.
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