Time for a Portfolio Checkup

Sometimes the passion for investing takes us off course. I know it is hard to believe that investors would be emotional enough to lose sight of the original objective relative to money. For more than twenty-five years I have taught and counseled with investors about keeping the ‘Why' ever insight so they maintain discipline in their investing strategy.

If you are asking yourself what is the ‘Why', it is simply -  why your are investing your money. What is the defined objective of your portfolio? Without this we are running our portfolio without a ruder or steering wheel. I learned from a mentor many years ago to manage money based on a pre-defined objective. This ‘Why' keeps focus on the goal. For example, a 401k plan in which you place your retirement money. What is the ‘Why'? Retirement! It will take 10 years saving $500 per month and a return of 12% per year to accomplish my goal based on where I am starting. This now defines how I invest the money, how I manage the money, how I set my stops, etc. In other words, it keeps you focused on what ‘YOU' want.

Without this ‘Why', I hear investors tell me their goal is... "make as much as possible!" or "make money!" If that is your goal you will be driven by indefinable objectives. I understand the ultimate goal is to make money, but for what? This brings the lifestyle issue clearly into focus. Investing is all about lifestyle - yours. When you and I as investors put our money at risk we expect a return on investment so we can have a better lifestyle. Investing for the sake of investing is what mutual funds do, not you. You invest because you want a better lifestyle, clear and simple. Each of you must define that lifestyle according to your ideology in order to make it attainable and motivational.

As the stock market reaches levels of concerns relative to downside risk, we must make decisions relative to the positions that make up our portfolio. This is a portfolio checkup. Just as you go to the doctor and have a physical exam there are benchmarks for a healthy person the doctor measures you against. Your portfolio has to be measured for the risk level relative to the market. This allows you to make decisions relative to your ‘Why'. As an example if you have gained 25% in your 401k account, as defined above, you are well ahead of your goal. It would be prudent to evaluate and lessen the risk of your account if it has increased relative to the market. You can always make up for lost opportunities, you can never make up losses.

Risk management is the key ingredient to managing your money. Money management isn't about a gain of 100% when the market is up 20%. Those make for great stories at cocktail parties, but attaining your ‘Why' is a better story. Telling about putting your children through college without debt or strain on your lifestyle is a great story. Having a home to live in without a mortgage is a great story. Driving a car without a payment is a great story. In the end the only ones to hear these stories may be you and your family, but what matters more?

Take time today for a checkup of your portfolio and define how you are doing relative to your ‘Why' - the lifestyle you defined! If you haven't defined your ‘Why' start there first, and then do a portfolio checkup!