As one would annually visit the dentist for a check-up or have your car serviced, it is vital that you apply that principle to your financial health as well. Ask yourself, when last did you perform a financial health status check on your investments?
“Generally, assessing your investments once a year is a good rule of thumb. While even a year is too short a time period to assess a medium to long-term investment, an annual review gives you a good picture of how your investments are performing and allows you to revisit your choices as you go along,” said Wanita Isaacs, head of investor education at Allan Gray.
Isaacs however warned that, one should not be tempted to perform investment reviews too often, as this may result in you making changes to your portfolio based on short-term performance, which could result in locking-in losses.
Head of insurance at Insurance Busters, Will Keevy, similarly advised: “It depends on the nature of the investment. By this I mean the timeframe of the investment as well as your risk profile. If the investment duration is more than 5 years you should be reviewing your portfolio annually with the guidance of your financial advisor.
“In the case of short term investments (less than 5 years), an annual review with your advisor should be fine. It is important to decide at the inception of the investment what the investment goal, the term and the risk profile for the investment is and then to stay the course even if it is at times difficult.”
He further added that the best time to usually perform a review within a yearly cycle is on the anniversary of the investment.
The importance of an investment review
Performing a review is vital, as it’s important to occasionally take stock and assess whether or not you are on track to reach your financial goals, emphasised Isaacs.
In taking stock, Keevy suggested, “making sure you align your your portfolio selection to give the investment time to work through the down cycles.”
“If you are for instance a moderate aggressive investor you need to understand that the higher growth you are after over the long term, will at times lead to short turn losses as is has been the case recently. You need to ride out these downs in order to benefit from the long term growth.”
Whereas in the short term investment game one can’t afford to be less aggressive since you do not have the time to ride out the ups and downs of the market.
While both Isaacs and Keevy advocate for the assistance of a financial advisor in performing the review and interpreting the returns, they suggested a few key tips for consumers:
-Check your investment performance against your personal benchmark: “Start with a clear grasp of the level of return you need to meet your goals. This is your personal investment benchmark and will help you to assess if you should be pleased or disappointed with your return.
The unit trusts you are invested in each have their own benchmarks, which represent their goals. Rather than looking at short-term performance, it is important to look at the return a unit trust has delivered over the time frame appropriate to that unit trust, and to your goals,” stated Isaacs
- Review your objectives: Certain life events may require you to assess as to whether your investment is still working for you and your lifestyle. “You may need to savemore, change the mix of assets in yourportfolio, or start drawing an income,” stated Isaacs.
- Assess your investment performance against the market: “While it is impossible to time an investment inthe short term, it is useful to considerwhether markets areat a very low or high point and make your decisions accordingly.
“When reviewing your investment, your biggest risk is that you base your decisions on short-term performance and switch out of your unit trust at the wrong time, locking in losses, or you overspend on a unit trust at the top of its performance cycle,” Isaacs advised.
- Review your unit trust’s performance: Investment managers set out the objective and investment strategy of unit trusts in their factsheets. You should assess your performance against your unit trust’s stated mandate, explained Isaacs.
- Understand how to interpret your investment returns: “The most convenient way to assess your investments is by looking at percentage growth, but this can be misleading. This figure often does not account for the amount of risk that your investment manager took on to achieve the return. Risky investments that fluctuate significantly may not suit your temperament and may cause you to switch at the wrong moment,” explained Isaacs.
In light of the above it is vital that you consult your trusted financial advisor to assist you in interpreting the review, so you are able to make well informed decisions about your investment going forward.
Keevy puts his tips down to; defining your investment goal at the inception of investment, determining your risk appetite, finding a good financial advisor to suit your investment needs, performing an annual review, and staying on course without making any unnecessarily drastic moves.