Should you review your portfolio each year?
The short answer? Yes – reviewing your investments once a year is a smart idea.
Our lives, goals, and financial situations change, and market conditions also fluctuate. As these changes happen over time, it’s important to look at your investments each year to make sure your portfolio continues to meet your needs now as well as your plans for the future.
Portfolio performance
One key reason to carry out an annual review is to see how your current investments are performing.
Leaving your money unchecked could result in you losing value or missing an opportunity to invest in something else that could provide a better return. By reviewing performance each year, you can reassess your current mix of assets along with how much is invested in each class of assets to see whether this is still providing you the best returns possible.
Personal priorities
There are many life changes that can impact your investments, including:
- Starting your career or becoming self-employed
- Moving out or buying your first home
- Paying off student loans or going back to school
- Buying a car
- Getting married, separated, divorced, or remarried
- Growing or starting your family
- Saving for post-secondary education
- Caring for aging parents
- Getting closer to retirement
Conducting an annual review gives you the opportunity to see how these changes (if any) have impacted things like your income, expenses, and cash flow, all of which can affect whether you need to rebalance any investments.
Life changes can also impact your reasons for investing and how long you invest. For example, you may have started out investing to achieve a short- or medium-term goal like buying a house or paying for a wedding. Now, you may be focusing on longer-term goals, such as paying for your child’s university or college tuition, or your own retirement.
Adjusting your investments each year can help you keep on top of life’s changing priorities while making sure you’re seeing the best returns possible.
Financial situation
While looking at your portfolio, you may also want to create a financial checklist to see how your investments fit into your wider plan.
Make the most of registered savings plans
When reviewing your portfolio, why not take the opportunity to see whether you’re making the most of other investments?
For example, an annual financial check-up can help you see whether you’re making the most of your tax-free savings account (TFSA) contribution room. If you’ve recently started or added to your family, opening or adjusting contributions to a registered education savings plan (RESP) can help you save towards post-secondary education.
A registered retirement savings plan (RRSP) also has tax advantages that can help you buy your first home or fund education while growing your investments.
See what you’re saving
Along with seeing how and where you’re investing your money, you could also re-evaluate how you’re saving it.
In addition to putting aside money for your long-term future, you may be contributing to a ‘rainy day’ or emergency fund with each paycheque too. How much you’re saving will change at different points in your life, so you may want to look at whether now is the time to be saving more in an everyday account or investing more to help your money grow for the future.
Be honest about debt levels
As part of your yearly financial review, look at your current debt, and ask yourself questions such as:
- What debt do you currently carry, and what type? (E.g. line of credit, credit cards, or student loans)
- Is this debt solely yours, or do you share it with a partner or spouse?
- Is your current debt manageable, or are you struggling to keep up with payments and/or pay off more than the interest?
- Do interest rates impact your debt and if so, how?
- How soon are you able to pay off your debt?
- Is your debt impacting your ability to invest more towards your future goals?
Getting an idea of how your debt plays into your financial plan will help you see whether you can free up more money to invest now, or how the returns on your investments in the long-haul could help you pay off debt in the future.
An annual review of your wider financial plan may also include looking at other needs, such as whether you need to buy or update any insurance policies or carry out any estate planning.
Risk tolerance
Any type of investment involves risk. How much risk you’re willing to take with your investments is known as your risk “appetite”, or “tolerance”.
This can change at different stages of your life. For example, if you’re single and starting your career, you could have a higher appetite for risk and be more aggressive with your investment choices as a result. This means you’re willing to ride out more market volatility with the hope of earning higher returns, as you may not have financial obligations such as a mortgage or children.
If you’re nearing the end of your career, you may not be as comfortable with the risk of losing money you’ll soon need to pay for your retirement, so you may take a more cautious approach and opt for more conservative investments.
Your risk tolerance can also depend on several factors such as:
- Your age
- How long you plan to invest
- What sort of goals you’re trying to achieve with your money
- How much money you’re investing and the size of your portfolio
- The diversity of your portfolio
- Your personal comfort level/attitude towards risk
Better understanding your own personal risk appetite and working with an advisor can help you determine whether this is the year to make any changes, or if you’re comfortable with the risk level of your portfolio as it is. One way to do this is by taking an investment personality questionnaire | PDF 945kb, which can help you determine your appetite for risk as well as how to build a portfolio that matches it.
Market volatility
Market volatility is something that all investors will encounter, and is something that’s impacted by several different factors, such as:
- Inflation and rising interest rates
- Government regulation
- Global events
- Environmental disasters/events
- Market sentiment, or the overall feeling of confidence investors have towards the market
As you look over your portfolio, there could be many market factors that have impacted its performance over the past year, and there will be many more that could impact it over the coming year as well.
You may want to consider things like where your investments are located, the current cost of living, whether environmental, social and governance (ESG) factors are becoming increasingly important to you and other factors when deciding if you want to rebalance any of your investments. Diversifying your portfolio is also a key strategy to help protect your investments from market volatility.
Your retirement plan
One key thing to think about is your overall retirement plan, which can also change as the years go by.
- Do you plan to stop working at 65, or continue with part-time or seasonal work?
- Would you like to retire earlier than age 65?
- At what age do you plan to start your government benefits like the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), Guaranteed Income Supplement (GIS) or Old Age Security (OAS)?
- What does your desired retirement budget look like?
- How will you cope with any unexpected or large expenses outside of your retirement budget?
- Do you have a workplace pension, and if so, have you made any contributions ?
- Beyond your investments, do you have any other plans to generate retirement income, such as property?
By getting a sense of when you’d like to retire, what your dream retirement looks like and how you’ll pay for it, you can see if your investments are still on track to help provide you with the life you’d like in your later years.
To help with this, you could speak to an advisor or do your own research. If you’re a member of a Canada Life workplace savings plan, you can set or update your retirement income goal in your online account.
Just log into My Canada Life at Work and input details about your current savings and expected retirement lifestyle to see if you’re on track to achieve the future that’s right for you.