End of year investment review

As we approach the end of 2019 many people will be sitting down to review their portfolio performance and instigating plans for 2020. While sometimes a review of your investment portfolio can be an “eye-opener” it is something which needs to be done on a regular basis.

Relative performance

It is important that you find an index which is relative to your investment criteria so that you can compare and contrast performance of your portfolio. For example, there is no point in comparing a portfolio of technology shares against the general Dow Jones index. As and when your portfolio structure changes it may be sensible to switch to different indexes. Whatever happens, it is imperative that you are able to compare and contrast your performance on a relative basis.

Sometimes it’s harder to take a loss!

Even the best investors in the world will have been faced with numerous losses perhaps even on a regular basis. Those with large egos are often tempted to retain these shares even if the wider market believes the story is changing. However, if you see the stock market as an “information exchange” this will perhaps give you a better understanding of share price movements.

We have seen the likes of Warren Buffett switching to technology shares in which he readily admits he has no real experience or interest. We have also seen other leading investors switching out of particular sectors they have simply got wrong. Knowing when to bank a profit is difficult but knowing when to take a loss is often harder!

Adjusting your investment criteria

We live in an ever-changing world where we can often see huge changes in investment strategies and investment trends. If you are looking to track the main indexes then at some point you will need to adjust your investment criteria to bring it “more up-to-date”. We’re not suggesting that you change your criteria on an annual basis, but if your criteria is “behind the curve” it may be worth reviewing. As above, Warren Buffet for many years ignored the technology sector but eventually gave in.

Taking a top-down approach

You can pick the best stock in the world but if the sector is not performing or the economy is struggling then it would be difficult to make positive headway. Therefore, many investors find it easier to take a top-down approach. Take a view on the economy, interest rates and then drip feed this down into sectors which could benefit. For example, if the economy was growing significantly this would have an impact on the housing sector and perhaps inject greater demand for new builds.

If this was the case, it would be worth looking at the housebuilding sector and then looking at the main leaders and those with potential for the future. If you get the economy right, the housebuilding sector right then you have a better than average chance of making money. That is assuming you also choose the right companies!

Conclusion

Each year you should look at your investment portfolio taking into account relative performance, financial needs for the future and any changes you should make. It is also important to take a look at any tax implications to ensure you are fully utilising all allowances and you have the “correct structure” in place. Even though the vast majority of investors are fully aware of their own wider situation, sometimes it pays to take professional advice from a third party to give a different angle.

Those who lose the most money in the stock market tend to be those who have large egos and just cannot admit they may have got something wrong. Are you one of those people?

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