Do This 15-Minute Portfolio Check-Up Now


By Walter Updegrave, RealDealRetirement @RealDealRetire

Would you be okay with your current investment strategy if stock prices suddenly took a nosedive? How about if the market skyrocketed to record territory and went on to even more gains? To make sure your portfolio is invested in a way you can live with no matter the path the market takes, give yourself my 15-minute Retirement Portfolio Check-Up.

It’s always a good idea to periodically review your investment strategy. But a clear-eyed assessment makes even more sense when the market is sizzling one day and fizzling the next. You can complete such an exercise quickly, efficiently and effectively by answering the three questions below.

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1. Do you have the right asset allocation?  You’d never know it considering how much the financial press focuses on the the ups and downs of the market and specific stocks, but the foundation of a successful retirement investing strategy isn’t guessing the market’s direction or searching for top-performing investments. It’s finding the right asset allocation, or the appropriate balance between the percentage of savings you put in stocks and the percentage you devote to bonds. The idea is to invest enough in stocks to generate high enough returns to build a decent retirement nest egg—but not so much that you end up selling stocks in a panic when the market takes one of its periodic dives.

You can get a decent sense of the stocks-bonds mix that’s right for you by taking this risk tolerance test. Answer 11 questions designed to gauge how big a loss you can comfortably stand and how long you plan to keep your money invested, and you’ll come away with a recommended blend of stocks and bonds. You’ll also get performance stats showing how that portfolio, as well as more aggressive and conservative versions, performed in good markets and bad over the long term.

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You can then compare the stocks-bonds mix of the recommended portfolio to your current allocation. (If you’re not sure how your retirement savings are currently divvied up, you can easily find out by plugging the names and ticker symbols of your investments into Morningstar’s Instant X-Ray tool.) Small discrepancies between the two are fine. But if your portfolio varies dramatically from the recommended one—say, a difference of 10 percentage points or more in stock allocations—you’ll have to decide whether to bring your portfolio in line with the recommended mix or stick with an allocation that may be pushing the limits of your risk tolerance.

2. Do you need to do some weeding? Combine financial firms’ relentless marketing of new and often gimmicky investment products with investors’ natural tendency to gravitate toward The Next New Thing, and it’s hardly surprising that over time our portfolios can become an unwieldy hodgepodge of  investments bought on the spur of the moment that don’t function as a coherent whole.

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Which is why it makes sense to periodically weed out investments that may not be doing you any good. Take a quick look at each of your holdings. If you can’t remember why you bought a particular investment, aren’t sure what role it plays in your investment strategy or aren’t even certain how it works, you probably don’t need it. There’s no official correct number of investments you should own. But once you get beyond a small handful of core stock and bond funds or ETFs, chances you’re no longer diversifying, but di-worse-ifying your portfolio.

One caveat: If you’re dealing with investments in taxable accounts, selling could trigger a taxable gain, although you may be able to offset that gain by realizing losses in other holdings. Ultimately, though, getting to a diversified portfolio that reflects your risk tolerance should trump tax considerations.

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3. Can you save on fees? Holding the line on investing costs always make sense, but it’s especially crucial in a slow-growth low-yield world like today’s. For example, with five- to 10-year Treasuries recently yielding 1.5% to 2%, paying even the 1% or so average expense ratio for an intermediate-government bond means you’re losing half or more of that yield to expenses.

Fortunately, there’s an easy way to limit the amount that fees eat into both stock and bond fund returns. By opting for broadly diversified index funds or ETFs, you can lower your annual expense tab to roughly 0.20%, if not less. (Today, there’s also a growing number of low-cost managed accounts if you prefer to have an adviser invest your dough.) Over the course of a career and retirement, choosing inexpensive funds over higher-cost alternatives could boost the amount of sustainable income your nest egg can generate by more than 40%.

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If you want to go the extra mile, I suggest you also consider doing a retirement crash-test to see how both your portfolio and your retirement strategy overall would hold up if the market goes into a major slump. Of course, that would require you to spend another 15 minutes or so with your finances. But going through such an exercise could save you lots of time, money and worry down the road.  (1/11/15)

Walter Updegrave is the editor of RealDealRetirement.comIf you have a question on retirement or investing that you would like Walter to answer online, send it to him at

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