A Review Of Your Portfolio

WITH THE RECENT market declines, it may be painful to reevaluate your portfolio in depth, especially if your portfolio contains large losses. But this review is necessary to see if changes are needed to your portfolio. Some factors to consider include:

* MEASURE THE PERFORMANCE OF EACH INVESTMENT IN YOUR PORTFOLIO. Many investments and investment managers will provide you with periodic performance information. If you invest in individual stocks and bonds, you may need to calculate those returns yourself. Your total return equals the change in market value plus any dividends, interest, or capital gains, divided by the beginning market value. Total return can be difficult to calculate, especially if you make additional investments or withdrawals during the year.

* COMPARE EACH COMPONENT OF YOUR PORTFOLIO TO AN APPROPRIATE BENCHMARK. A wide variety of market indexes now exist, covering many different segments of the market. You should be able to find ones that track investments similar to each component of your portfolio. Making comparisons to a benchmark should help identify portions of your portfolio that may need changing or that you want to start monitoring more closely.

* CALCULATE YOUR OVERALL RATE OF RETURN, COMPARING IT TO YOUR ESTIMATED RETURN. When designing your investment program, you probably assumed a certain rate of return, which determined how much you needed to save to achieve your financial goals. Calculating your actual return will determine if you are on track. With the recent market declines, you are likely to find you have not made that much progress or may have lost ground over the past couple of years. In that case, you need to take a fresh look at your financial goals and your current investments, and then recalculate how much you should be saving on an annual basis to reach your goals.

* REVIEW YOUR OVERALL ALLOCATION TO DETERMINE WHETHER CHANGES ARE NEEDED. This annual review is a
Good time to compare your actual allocation to your desired allocation. You may find you need to make changes for a variety of reasons. Over time, you will find your allocation shifts due to varying returns on different assets. You may also need to sell certain investments that are not performing well. Your asset allocation is likely to need refinement, since your strategy will change over time.

You should review your portfolios performance annually to ensure your investment strategy is on track.