5 Simple Steps to Perform a Mid-year Portfolio Review

Many investors assume that reviewing their financial status at the end of the year is sufficient, but a mid-year review is just as important. Taking a pause in the middle of the year to assess your assets can be beneficial, especially this year, after nearly six straight months of high market volatility. The decline in bond prices or even equities could have a detrimental impact on your portfolio. A mid-year assessment of your portfolio provides a chance to change your holdings to take advantage of new opportunities.

Periodic reviews during the year could be beneficial for keeping track of your progress with regard to spending patterns, unpaid debt, any unforeseen tax responsibilities, and portfolio evaluation. It enables you to look at your accomplishments critically and pinpoint growth opportunities. Overall, now is the best time to evaluate whether you are headed in the right direction with your investments.

Investors this year are severely impacted than last year due to the spiralling inflation. In times like these, a mid-year review of your portfolio is essential in addition to your annual review, so now is a good opportunity to assess how things have been going and make effective investment strategies for the rest of the year.

With so many investment options available, creating an investment portfolio is not difficult. However, you must be aware of investment trends and other elements that influence the portfolio performance if you want to make your money grow and accumulate wealth. It is critical to periodically monitor and assess whether the invested funds are increasing at the rate that was initially planned. However, this entails a periodic analysis, including a mid-year review of the portfolio.

So, where should you start? You can perform a mid-year portfolio review in five easy and simple steps. As you go through the process of checking up on your portfolio, here are a few guiding points for performing your mid-year investment portfolio review:

1. Review Your Portfolios Progress Against Goals

Review on what's been accomplished in the first six months: Have you been saving substantially? Have you been paying your bills and debt repayments on time? Are your income sources stable? Are your investments performing as expected towards your goals?

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds

First and foremost, it is important to benchmark your progress towards your investment goals. The changes in a dynamic market and economic conditions, such as volatility or changing interest rates, may have taken your investments off course. This review provides an opportunity to double-click on some of the underlying reasons and evaluates the risk they pose in the future.

The most important step in any portfolio check-up is a basic "wellness check," an assessment of whether your current portfolio balance and expected additional contributions over your time horizon put you on track to reach your financial goals.

Everyone's financial goals are different. Whether your goal is accumulating wealth, paying off credit card debt, or buying that dream home, each call for a different strategy. As a result, think about creating a mind map or flowchart that reflects your present progress. It should give you a clear picture of the goals you have been achieving and the ones you have missed.

2. Incorporate Life Events into Your Financial Goals

When creating an investment portfolio, you must have set certain S.M.A.R.T financial goals as per your initial requirements. But as unexpected events are part of life, such circumstances can make certain goals redundant and encourage you to create new ones. In the last six months period in this year, did you experience a significant life event, such as a change in job, marriage, birth or death in the family? If so, you may need to reassess your investment goals.

Moreover, due to prevailing high market volatility, you might have put some of your short-term goals on hold, such as buying an expensive car or that vacation abroad. Similar to this, you can come across many instances that might compel you to adjust your financial condition and goals. Check if your investment horizon and financial objectives make sense in light of your current financial circumstances. Perhaps to ensure that your financial goals remain in accordance with your investment portfolio, the primary step is to start reviewing them.

3. Tax Implications And Opportunities

Investments, insurance, and tax-saving measures are distinct from each other. While reviewing your investment portfolio, check if you have availed of the tax-saving opportunities, too, such as paying for tax-saving fixed deposit receipts, public provident funds, equity-linked savings schemes, etc.

A mid-year check can also help you fetch rewarding tax-saving opportunities and add it to your investment portfolio. Looking for and understanding any changes to tax rules now provides a lead time to adjust your plan before the year-end. Start checking at the portfolio level and then move on to individual investments to check which ones have the potential to earn good returns. While saving on taxes is important, the focus must always be on investments that earn high returns and avoid choosing those that promise tax benefits but offer low returns. While reviewing possible returns, compute the potential tax burden too to calculate the post-tax returns.

4. Review Your Asset Allocation

Your midyear portfolio review is a great time to reconsider your asset mix of investments in various asset classes. After you understand your progress towards your goals and tax opportunities, you can turn to your actual investment portfolio. The recommendation is to start at the overall portfolio review and drive own to the sector or individual holdings if you find problem areas to address.

Because your portfolio's asset allocation is the biggest determinant of how it performs, the next most important step in any portfolio review is to assess your allocation relative to your target mix. You must ensure that the asset allocation you have set matches your risk tolerance, financial situation, and time horizon. If you have experienced major life changes, you may also want to adjust your investment strategy and target asset mix.

Given the headwinds in play, there is a possibility that the relative market performance of asset classes has changed your investment mix, causing your combination of equity and debt investments to drift away from your asset allocation strategy. Hands-off investors may be surprised to find that their portfolios are equity-heavy relative to their targets. For investors getting close to retirement, in particular, de-risking the portfolio by lightening up on equities and adding the proceeds to high-quality bonds may be a worthy consideration.

Diversification reduces your portfolio's volatility and hence the potential risk. You won't have to constantly fret over poor-performing assets as your remaining assets can help to cover the losses. Considering the market dynamics and your financial circumstances, you may reallocate your investments if the current asset mix is not up to the mark. Consider constructing an 'All-weather' portfolio that will ensure your investments are well diversified to survive the tides of market volatility.

5. Rebalancing Your Portfolio

Reviewing and Rebalancing are two different aspects. As mentioned earlier, you may rebalance your investment portfolio to establish better risk control and ensure that your portfolio does not hold any underperforming assets. While reallocation helps you diversify and switch allocation between asset classes, Rebalancing offers investors an opportunity for value investing by purchasing undervalued assets.

Portfolio Rebalancing is nothing but correcting the deviations in the original allocation. You may only consider rebalancing your portfolio when there is a significant deviation from the original mix and not every time you plan to review your portfolio. Such a mid-year periodic review of your investment portfolio will give you an appropriate idea of rebalancing the existing asset allocation. This step of rebalancing your portfolio will enhance your portfolio performance and reduce the risk of concentration in any particular asset class.

To conclude...

It is essential to review your portfolio periodically in suitable intervals, at least semi-annually or annually. No matter how cautiously you choose your investments, there is no assurance of future performance, as changes in the market and economic outlook influence your portfolio performance.

Reviewing your portfolio is important to help you achieve your financial goals. As you grow older, life events and personal factors may change your ability and comfort to tolerate risk. Regardless of market conditions, your strategy will need to be adjusted over time.

Therefore, just like a regular health check-up, a mid-year investment portfolio review can be just as useful. Keep in mind that reviewing your portfolio periodically, such as the year-end or mid-year review, will assist you in creating a robust all-weather portfolio. The investment decisions to Buy, Hold and Sell the investment instruments in your portfolio should be rational, scientific, and unbiased with thorough research and analysis.

PS: At PersonalFN, we understand that not everyone might have the expertise to review their investment portfolio. I recommend that you to enrol for PersonalFN's Mutual Fund Portfolio Review Service.

It is a personalized portfolio review service designed to boost the returns of mutual fund investors. And it reviews your existing mutual fund portfolio, helps you correct your past investment mistakes, and suggests the best possible options for you. Read here for more details...

If you wish to review your investment portfolio to identify if it requires reallocation or rebalancing, enrol for PersonalFN's Mutual Fund Portfolio Review Service today!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst