Setting Investment Goals and Reviewing Targets

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July 8, 2016 1:52pm NYSE:AGG NYSE:SPY

target-date1David Fabian:  The mid-point of any year is a great time to review your investment goals and targets.  Each investor should soon be receiving their monthly or quarterly statement from their broker.  This key document lists your individual positions and account values. 

It also allows you to review your cost basis, gain/loss, and overall asset allocation.

I encourage everyone to take 30-minutes out of their day to review this information.  It doesn’t matter if you have been following the markets tick by tick or haven’t looked at anything since 2015.  There are always tidbits that you can pick up that may prompt worthwhile adjustments.  Examples may include the decision to sell an under performing fund, re-balance your holdings, or simply deploy additional capital.

Also take the time to calculate your 2016 total return on a year-to-date basis (net of any additions or withdrawals).  I always recommend investors have a consistent and reasonable goal that they are striving to achieve each year.  It doesn’t matter if your goal is 4% or 24%, you should at least be able to compare your actual progress versus your expected outcome to see if you are on track.

You won’t always hit your goal perfectly on the nose each year.  Returns are never that linear or predictable.  However, having a goal can help maintain a balanced perspective and ensure your portfolio is being properly managed to your objective.

I would bet that most conservative investors who are over-allocated to fixed-income are exceeding their goals this year.  Conversely, traditional growth-minded investors may find themselves coming up short as the volatility in stocks has stymied returns.  Consider that the SPDR S&P 500 ETF (NYSEARCA:SPY) is +4.04% in total return so far this year versus the iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG) at +5.53%.

It’s also worth noting how you have navigated the markets over the last six to twelve months.  Review your number of trades and whether those changes have added or detracted value from your efforts.  Did you make any big mistakes that were born out of emotion rather than discipline?  Are there any lessons to be learned from the process versus the outcome?

The tricky part moving forward is for those who have done well to avoid becoming overly emboldened by their recent success.  The market loves to humble the best of us and assuming that all trends currently in place will extend indefinitely can be a foolhardy mindset.

Furthermore, its critical for those who may have fallen behind their expectations to avoid becoming overly pessimistic.  This can result in the urge to make drastic changes to try and “catch up”.  Every strategy is going to be encumbered by periods of weaker than expected returns.  It’s the ability to stick with a process and maintain a balanced perspective that will determine your level of success.

A couple of extra tips:

  1. Don’t compare your returns versus anyone else. You aren’t a billionaire investor, hedge fund, or stock picking monkey.  Your portfolio should be unique to your investment experience and risk tolerance.
  2. Don’t compare your returns to the S&P 500 Index. I have yet to run into a single investors’ portfolio that can be reasonably compared to the 500 largest stocks in America.  Most people have stocks, bonds, cash, international exposure, commodities, etc…  It’s like comparing apples and oranges.
  3. Have a counter-intuitive mindset when it comes to making changes to your portfolio. We have just had a big run in virtually every asset class since the February lows.  If you are overweight one asset class that has done well, you may want to pair back or re-balance by selling into strength.  Then look to re-deploy that capital to other areas that are less popular.  It may not be the easy thing to do, but it’s probably the right thing to do.

The bottom line is that a little mid-year maintenance for your portfolio can provide a satisfactory boost in your confidence and long-term results.   Even investors who don’t make any changes will be satisfied with the knowledge that they took the time to review their opportunities and risks.

This article is brought to you courtesy of David Fabian.

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