Sunday, November 12, 2006

How to review you investment portfolio (Part 1)

From Investor Insight by TD Waterhouse:

Financial markets change, and so do you. That's why it's always a good idea to review your investment portfolio regularly...

Your investment objectives

  1. Are my goals reasonable? You can't meet impossible financial goals.
  2. How quickly must my money grow? Look at how far you've come, and how far you have to go. Adjust your performance objectives if necessary. But keep them real and within your risk tolerance.
  3. Am I investing enough?
  4. Has my live changed? Has anything vital changed in your life that calls for an adjustment of your financial objectives or investment strategy? What about major developments, such as marriage or divorce, the birth of a child, or a change on employment?

Asset allocation

  1. Is my portfolio adequately diversified? Do your investments include cash, fixed income, and equity investments in a mix that is suitable for current market conditions and your risk tolerance?
  2. Do I need to rebalance? If certain investments have appreciated in value, they may now represent a disproportionate amount of your portfolio. It may be time to lock in profits and reinvest in more attractively priced securities.
  3. Should I change my focus? Generally speaking, the older you are, the greater the need to be aware of the risk and potential of loss of capital. After all your time to replenish lost capital diminishes as the years pass...
  4. Is my portfolio tax-efficient? Properly allocating investments among your Retirement Savings Plan(RSP) and non-registered investments can reduce income tax. Consider holding interest-generation investments, such as bonds and bond mutual funds, insider a RSP, where the income generated is tax-deferred. Equity investments may be more suitable outside your retirement plan because the dividends and capital gains they generate receive favorable tax treatment.