Whether your investments are in a retirement account or with an investment manager, it is extremely important that you check up on them, both quarterly and annually.
Consistent reviews will help you answer key questions:
What is the value of your investments?
Do the investments still meet your objectives?
Is the fund or manager doing a satisfactory job?
Monitoring the total value of your investments quarterly alerts you to trends. No surprises! If you are caught off guard opening an envelope to discover that your accounts have lost 25% of their value, you may panic and sell at the worst possible time.
Investing is risky. Quarterly assessments let you ask yourself how you are feeling about the swings in value of your investments. If the ups and downs are giving you vertigo, maybe the mix of investments you have is too aggressive and needs adjusting.
The annual evaluation helps you look at your long-term goals in the context of performance – how are your investments doing, overall? Are they meeting your objectives?
Are you on track to reach retirement goals, such as accumulating a desired amount of assets? In an off year you may need to make adjustments, either by saving a little more or changing the investment mix. Does the current mix balance your need for growth with your tolerance for risk?
Although the annual performance evaluation of your funds or investment manager only provides a report card for a single year, it is a good idea to do it. It will help you stay in touch with the bigger picture. If an investment or investment manager is not delivering as expected over a number of years, you need to be aware of this and “keep score.” A “growth” mutual fund may do poorly in a strong stock market year. If it continues to perform differently from similar funds in the same category, this is cause for concern. If this fund continued to lag for three years, I would look for a replacement.
When evaluating an investment manager, you need to establish benchmarks of performance. The manager can provide guidelines for measuring his or her services to you, such as outperforming the S&P 500 or some other index. Other questions may be more meaningful. Are you making progress toward your investment goals, e.g., retirement savings? Are your investments growing faster than the rate of inflation? Is the market going up while your account is going down? An investment manager’s job is to provide answers to these questions. Establishing agreed upon benchmarks is key. Comparing these targets to the performance of your investments gives you a good sense of how the investment manager is doing.
If the ins and outs of tracking your investments seem too complex or beyond your interest level, hiring professional help may benefit you. But there is no substitute for paying attention!