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Give Your Portfolio a Midyear Checkup
 by Ernie Ankrim,
Chief Investment Strategist
Most investors wait until the end of the year to take a close look at their portfolios, but doing a midyear checkup on your investments now can be a great way to stay on track to your long-term goals. Here are a few things to keep in mind:
Put Things in Perspective
If one or more of your funds has been disappointing, it's important to put that performance in perspective:
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- Compare your funds' recent performance with those of an appropriate index and with the peer groups tracked by fund rating services, such as Morningstar, Canada Inc. or Globefund
- A fund that has underperformed compared with its peer group or the index isn't automatically a good one to sell. The portfolio manager may be staying true to the fund's original strategy, and if you are confident in a fund's manager and his or her investment strategy, then it can make sense to hold onto the fund even if it has disappointed you over the short term
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Consider the Tax Consequences
Making frequent changes to your portfolio can have big tax consequences. If you feel a change is warranted, be sure to make it as methodically as possible — by offsetting losses with gains, for example.
Don't Let Winners Throw Your Portfolio Off Balance
A fund that has significantly outperformed can create its own set of problems. Holding onto winners may be very tempting, but it can chip away at your portfolio's diversification over time. As the amount of your portfolio dedicated to a fund expands, of course, so does the risk.
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- Consider rebalancing your portfolio, especially after volatile periods (again, considering the tax implications of such a change). It is a good way to re-instill discipline and help stay on track to your long-term goals. But the goal of rebalancing should be to keep your portfolio's overall risk level under control-not to jump to a fund that you think will deliver the best near-term performance
- Realize that no one, not even the professionals who run fund companies, is immune from the temptation to jump on the bandwagon. According to Morningstar, a large percentage of the worst-performing funds were created in the last year, probably to capitalize on market trends. Most of the recent laggards are aggressive specialty funds that focus on Internet and other technology stocks
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Keep a Level Head
Perhaps the best lesson one can learn from the market's performance over the past six months is that neither euphoria nor despair is a good foundation for making investment decisions. At Russell, we have found again and again that investors tend to make their best decisions not when they are motivated by short-lived sentiment but rather when they think objectively about what they're trying to achieve over the long term and act accordingly.
Copyright © Frank Russell Company 2008. All rights reserved. See Important Legal Information.
Date of first use: September 2000.
This publication should not be construed as investment, legal, or tax advice. The contents are intended for general information purposes only, and you are urged to consult your own investment, legal, or tax advisor concerning your own situation and any specific investment questions you may have. For further information about these contents, please contact Russell Investments Canada Limited.
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© Russell Investments Canada Limited 2008. All Rights Reserved.
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