A self-managed investment checkup is crucial for any DIY investor. I started investing on my own in 1996 with my first stock purchase through Ameritrade, and that experience led me to a Wall Street career and eventually to founding Financial Samurai in 2009.
It’s wise for everyone to review their investment portfolio at least quarterly. If you don’t, your allocations might drift from your intended targets. For example, I try to keep individual investments within a 5% limit of my portfolio. Without regular checks, I’ve seen investments like a gold ETF and Amazon stock unexpectedly double to 10%.
We’ve learned a lot about various investment strategies for retirement. Now it’s time to apply that knowledge. Remember, knowledge is only powerful if acted upon.
Let me walk you through how to conduct an investment checkup using my personal example. Currently, the stock and bond markets are at record highs, making it the perfect time for a thorough review.
Step 1 – Self-Assessment
– Age: 46
– Work Status: Semi-retired, blogging about personal finance, consulting
– Investment Goals: Conservative focus on protecting principal, outpacing inflation, and maintaining steady investment income.
– Income Streams: I have over 10 sources of income, primarily online. If broken down further, the streams exceed 20.
– Net Worth: Comprised of 40% real estate, 20% public stocks, 15% private business, 10% private equity, and 15% risk-free investments. I aim to reduce real estate exposure to 30%.
– Education: Worked in finance from 1999 to 2012, earned an MBA with a focus on real estate and finance, and have written over 1,200 finance articles since 2009.
– Dependents: Varies as I may need to support parents, in-laws, and children.
– Work Ethic: I prefer working 25-30 hours per week, despite having worked 70 hours weekly earlier in my career.
– Financial Attitude: Conservative due to past financial busts. I believe in working hard, even in menial jobs if needed, to ensure financial stability.
– Weaknesses: Working on humility and addressing blind spots in my knowledge and attitude.
Step 2 – Running the Checkup
Link your investment accounts to a tool like Personal Capital, use its Investment Checkup feature to run diagnostics based on your profile. It should confirm if your asset allocation matches your risk tolerance and goals. For instance, it might show you could earn more by reallocating funds, which you may or may not choose to follow depending on upcoming investment plans like real estate purchases.
Step 3 – Target Allocation
Review different strategies from conservative to aggressive to find one that aligns with your goals. I’ve settled on a strategy that focuses on capital preservation and modest growth, suitable for my age and conservative nature.
Step 4 – Comparing Results
Analyze how your current investment allocation stacks up against your target strategy. Adjustments might be necessary if there’s a significant potential gain from reallocating investments.
Step 5 – Assessing Efficiency
Check if your portfolio is positioned on the efficient frontier, indicating an optimal return for the level of risk taken. This may involve adjusting the proportion of stocks in your portfolio.
Step 6 – Making Decisions
Review your total portfolio to decide on future investment moves, particularly how much cash to deploy or hold, based on current market conditions and personal financial goals.
Step 7 – Retirement Planning
Use tools to project your investment growth and retirement income. Ensure these projections meet or exceed your future needs, adjusting contributions or expectations as necessary.
Regularly reviewing your investments helps align your financial actions with your goals, ensuring you’re on track to meet your financial objectives. It also provides a reality check against market conditions and personal life changes.
