The 2018 year is almost at its end. If you’re like most, you likely have a long list of to-do’s to complete before the year ends. Traders and investors, especially, have their hands full. With all that needs to get done, one of the most important annual tasks that traders should ensure to complete is a year-end review of their investment portfolio. Taking a look at an investment portfolio will give traders the opportunity to see how their investments are performing, rebalance their asset allocation, check automation settings, evaluate diversification, and plan for the new start ahead.
To ensure that your end-of-the-year review of your portfolio is hassle-free, consider the following tips to help guide you along the way.
Review Portfolio Performance
Just like the longstanding New Year’s resolution of dropping some pounds, you should begin the review of your portfolio with a weigh-in, as you need to understand where you stand in order to know what to lose. So, when reviewing the performance of your portfolio, be sure to measure the performance of your investments with an applicable benchmark that matches your portfolio. To help you better understand this concept, consider the following.
With a typical 60/40 investment mix containing stocks and bonds, a trader would want to compare the return of their investments to a 60/40 blended benchmark. One efficient way to do that is to look at a portfolio of index mutual funds, or exchange-traded funds (ETFs). Comparing investments to a low-cost mix of ETFs will give the trader a solid understanding of how they are doing.
If a trader’s investment mix is performing reasonably close to the index investments, their portfolio is in good shape. However, if it is underperforming, it may be the right time to implement a new investment strategy.
Rebalance Asset Allocation
Not all assets move in lockstep, so over time, your portfolio will drift away from its ideal weighting. Review your individual stocks, mutual funds, ETFs, and any other type of investment you have and determine how you want it to look in the upcoming year. If a portfolio that’s meant to be 70 percent stocks has increased to 80 percent, you must sell stocks and buy bonds to restore the balance. That way, you’re taking some profit from the investments that have already brought in profits, and keeping your portfolio in tune to the risk model that is involved in your investment strategy.
Check Automated Settings
When in doubt, automate. In most situations, automating your portfolio accounts is very beneficial. Automation allows for savings rates to be increased over time, for your portfolio to be rebalanced at periodic intervals, and of course, it saves traders and investors time and keeps them from making unwise decisions influenced by emotion. Confirm that your algo trading strategies and settings are in place to ensure you have a better start to the new year.
The end of the year is a great time to evaluate your portfolio’s diversification among assets, like stocks and bonds, and categories within each. For example, stocks and bonds should be representing different company sizes, industries, and locations. Diversification reduces your investment risk by making sure that you’re not overly exposed to any individual investment.
Plan For 2019
Instead of banking on another year of market highs and low volatility, begin preparing for the new year now. Reflect upon your success and failures that happened in the recent year, and begin mapping out how you are going to achieve your plans and goals this upcoming year. Establish trade time frames, create risk management rules, and set process goals to ensure you are on the right track for the new year.
Now is the time to begin evaluating the performance of your investment portfolio. Following these tips will help ensure you are prepared for the New Year. If you have been unsatisfied with your returns in 2018, you may need to make some changes. One of the most effective changes you can make this new year — if you haven’t already — is automating your trading strategies. And with AlphaDroid, a premier algo trading platform, average investors and traders can do just that. To learn more about how AlphaDroid and algo trading can bring in higher returns this upcoming year, contact our support team today!