Why You Absolutely Need to Check In On Your Investments

Imagine you’re planning a road trip. You wouldn’t just set your GPS once at the beginning and then ignore it for the entire journey, right? You’d check it periodically to make sure you’re still on the right route, that there aren’t any unexpected detours due to traffic or road closures, and that you’re still heading towards your intended destination. Investing is very similar – it’s a journey towards your financial goals, and just like a road trip, it requires periodic check-ins and adjustments.

So, why is it so important to review and adjust your investment strategy periodically? Simply put, life and the world around you are constantly changing. Your initial investment strategy, no matter how well thought out, is based on a snapshot in time – your financial situation, your goals, and the market conditions at that moment. As time passes, these factors inevitably shift.

Let’s break down some key reasons why regular reviews are crucial.

Firstly, your life changes. Think about it – what was important to you financially five years ago might be very different today. Maybe you’ve gotten married, had children, bought a house, changed jobs, or are getting closer to retirement. Each of these life events can significantly impact your financial goals, your risk tolerance (how comfortable you are with potential investment losses), and your time horizon (how long you have until you need the money). For example, when you are younger and further from retirement, you might be comfortable taking on more risk for potentially higher returns. However, as you get closer to retirement, you might want to shift towards more conservative investments to protect what you’ve accumulated. Ignoring these life changes and not adjusting your investment strategy accordingly is like continuing to follow your old GPS route even after you’ve decided to visit a different city!

Secondly, the market changes. The financial markets are dynamic and constantly evolving. Economic conditions, interest rates, inflation, and even global events can all influence the performance of different investments. What was a high-growth sector last year might be struggling this year, and vice versa. Regularly reviewing your portfolio allows you to see how your investments are performing in the current market environment. It’s not about trying to time the market perfectly – which is nearly impossible – but rather about understanding if your portfolio is still aligned with your goals given the current economic landscape. Imagine your road trip route includes a mountain pass. If you hear there’s a snowstorm in the mountains, you’d want to check the conditions and potentially adjust your route to avoid getting stuck. Similarly, market reviews help you navigate the ‘economic weather’.

Thirdly, your portfolio might drift off course. Even if your life and the market conditions remain relatively stable, the simple act of investing itself can cause your portfolio to become misaligned over time. This is because different types of investments grow at different rates. For instance, if your initial strategy was to have 60% in stocks and 40% in bonds, and stocks perform exceptionally well over a period while bonds remain relatively flat, your portfolio might now be 70% stocks and 30% bonds. This shift, known as portfolio drift, can unintentionally increase your risk level beyond what you’re comfortable with or what’s appropriate for your goals. Reviewing and rebalancing your portfolio – bringing it back to your original asset allocation targets – is essential to manage risk and stay true to your intended strategy. Think of it as realigning your car’s wheels periodically to ensure it drives straight and efficiently.

Finally, your investment goals might evolve. Perhaps you initially started investing for a down payment on a house, but now your goal has shifted to saving for your children’s education or early retirement. As your priorities change, your investment strategy should adapt accordingly. Reviewing your strategy gives you the opportunity to reassess your goals and make sure your investments are still on track to help you achieve them. It’s like deciding halfway through your road trip that you actually want to visit a different landmark – you’d need to update your GPS and adjust your route to reach your new destination.

In conclusion, reviewing and adjusting your investment strategy periodically is not a sign of panic or uncertainty, but rather a sign of responsible and proactive financial management. It’s about ensuring your investments remain aligned with your evolving life, the changing market conditions, and your long-term financial goals. Just like regular maintenance keeps your car running smoothly, periodic investment reviews help keep your financial journey on the right path towards your desired destination.