Investment Watch

Dave Young

With the New Year UPON US, it’s that time again.

Time to get back in shape. Time to set new goals. Time for your annual portfolio review!

I know for some that sounds about as much fun as an annual physical. But in terms of importance, it ranks at the top of your list. If you don’t know where you’re going, it’s difficult to get there. And if you don’t measure your progress, you may never get there.

It’s time to clarify why you’re investing in the first place. Is it to provide retirement income? Is it to supplement it? Is it to provide an education for your kids? Is it so you can travel? Is it so you can be financially free?

Whatever the reason, clearly define it. And once you’re clear on the why, look at how you’re going to make it happen.

How much money do you need to save each year to meet your goals? What rate of return does your portfolio need to generate? What is the probability you will reach your objective — at different rates of return? Is your portfolio properly positioned for the market cycle? Are you taking too little risk? Are you taking too much?

If you can’t answer these questions, you’re leaving your financial future up to pure luck. “Luck” and “hope” are two words you never want to use when talking about your investments.

At Paragon, we offer free portfolio reviews each year through our website. Many are for local investors. Others are investors referred to us nationally from Morningstar, the well-known mutual fund rating organization. Most are experienced, retired investors with significant investible assets.

Below are five mistakes we repeatedly see in portfolios.

1. Risk levels: Investors often don’t know how much risk they need to take in order to reach their goals. They haven’t defined how much market volatility they can comfortably live with. What’s more, they have no idea how much risk they’re actually taking. As a result, next time the market goes down, they will likely endure sleepless nights as they hope the market recovers. Odds for success? Low.

2. Diversification: Investors own many mutual funds and think they are diversified. We regularly see accounts holding 40-plus funds. What they often don’t realize is many of their funds hold the same stocks. In reality, they’re not diversified at all. They’re usually taking much more risk than they realize.

3. Bonds: Investors hold bonds for safety and stability. Bonds provided safety over the past 30 years because interest rates declined from 18 percent down to 2.5 percent. Most bonds do not provide safety when interest rates move up. To the contrary, bondholders may see significant losses going forward as rates increase from all-time lows.

4. High expenses: Many portfolios are filled with expensive mutual funds. Investors are paying management fees, transaction costs and 12b1 fees. They can often achieve the same market exposure through ETFs at a fraction of the cost.

5. Knowing when to sell: Buying a stock or fund is the easy part. Knowing when to sell is the hard part. Investors should never own a position they wouldn’t be willing to buy today. We see portfolios full of investments that should have been sold long ago.

If you have at least $200,000 invested and would like a second opinion on your portfolio, go to www.paragonwealth.com and request a free portfolio review.

It’s that time again.