- Decide on the frequency of the reviews and be disciplined about it. Doing an ad hoc check during a market dip is usually a bad idea.
- Review your long-term investment performance against your personal benchmark – i.e. the level of return you need to meet your goals. Do your investments measure up?
- Be clear on your objectives. How have your needs changed and have you been through any major life changes that need to be addressed?
- Research the market to see if your investments have performed in line with, or better, than market conditions.
- Read your investment’s factsheet to get insights into what your investment manager has done to achieve returns. Understand the return relative to the unit trust’s objective and the market and make sure the manager’s actions align with the stated investment strategy.
JOHANNESBURG - When should you check on your investment?
It’s a good idea to check your investments regularly but do it too frequently, and you could end up locking in losses.
Lettie Mzwinila, business development manager at Allan Gray shares some tips on looking after your investment.
In his personal finance handbook, Think Yourself Rich: a step-by-step guide to financial independence (Penguin, 2018), Moroka Modiba draws a great analogy between investing and farming.
Modiba recounts how his money-savvy grandfather urged him to keep an eye on his investments in the same way a farmer diligently tends his crops. “A farmer will not plant his crop and leave it to grow by itself without caring for it. You have the responsibility to keep checking on your crop to ensure that it grows and produces as expected,” his grandfather told him.
The farming and investment analogy is particularly clever because farming, very much like investing, is an exercise in patience. You have to be attentive to performance but patient in the long term to see good, steady returns.
A plan gives you something to measure against
When it comes to investing, it’s a good idea to begin your journey with a financial plan that captures your current net worth, the market value of your assets, your liabilities, investment objectives and your time horizon. This financial plan will help you measure your investment growth against your objectives. You need to check in on your financial plan and your investments from time to time to ensure your portfolio still meets your needs and risk profile – but how often is enough?
A good rule of thumb is to check your investment once a year. An annual review gives you a good picture of how your investments are performing and allows you to revisit your choices as you go along.
The issue with checking your investments too often is that higher-risk investments, such as equities, are suitable for long-term investing, but can move up and down over the short term. If you check on your investment during a dip you may be tempted to hastily withdraw or switch in response to these short-term market fluctuations, permanently locking in losses. Remember a loss on paper is not a real loss unless you take action.
However, you shouldn’t wait for your annual review if you have a significant life change: getting married or divorced, had a child, changed jobs and are earning more – or less - could also be a catalyst for a review. Your plan may need to change if your needs have changed.
Checklist: How to approach your review
It is a good idea to consult an independent financial adviser to assist you with long-term financial planning. They have the experience and objectivity to help you make the right investment decisions for your circumstances.
- PERSONAL FINANCE ONLINE