Monthly Minute – February 2022

Investment Assessment

Investment Assessment

Successful investing, in our opinion, is done with a long-term focus.

We know there are many ways people choose to invest their money. This write-up isn’t here to tell you which is good or bad (though we may share our thoughts on the topic another time).

This month, we want to share some things we believe will give everyone a better chance at success. Having a process on how you review your investment accounts is the best place to start.

Where To Start?

Carl Richards recently said: “portfolio design only matters to the degree that it influences your behavior.”

The first place to start is having a good understanding of your tolerance for risk and selecting a portfolio to match. Hopefully, you’ve done this step before, but if not, you should start here.

Risk Tolerance

Many places have what are commonly called risk tolerance questionnaires. All financial planners will have you fill one out before investing your money.

That’s just part of the equation though in our opinion. Below are some additional things to consider that we believe will help you determine your ideal allocation (investment mix of stock vs bonds).

  • How did you respond to previous market corrections (March of 2020 or 2008)?

  • What is your time horizon (how long until you need the invested assets)?

  • How often do you check your portfolio?

  • How often do you check the market or watch market-related news?

The answers to these questions along with your risk tolerance score from an assessment will go a long way in helping determine how much risk you’re willing to take.

As mentioned above, hopefully you’ve already done the initial step in the past. Even if you have, it’s always good to make sure nothing has changed.

Then What?

Once you have a clear understanding of your tolerance for risk, the next step is to make sure your investments line up with that.

You should have been given or guided to a specific asset allocation for your risk before investing in the first place.

An asset allocation is simply the amount of stock/equity/company ownership you own in your portfolio versus how much bond/fixed income/debt instruments you own.

The best way to track your overall allocation is to make sure you aggregate all of your accounts together. Having the investment holdings in your 401(k), Roth and traditional IRA’s, and your taxable account all in one place allows you to see the full picture of how your money is invested.

The easiest way to aggregate your accounts is with software. We use RightCapital, but there are many programs and other options out there that will allow you to do this.

Once you’ve done this, you can tell if your overall allocation is off or within a preset boundary you’ve set for it.

Make Adjustments

Now that you’ve aggregated your accounts and determined whether or not your investments match your desired allocation, you’ve either discovered that you need to make some changes or confirmed you’re in line.

If you’re within your preset boundaries for your allocation, your best bet is most likely to do nothing. There are some reasons why you may want to do some things (tax loss harvest, harvest gains in a down income year…etc), but that’s another conversation for another day.

Asset Allocation

If it’s been a while since you’ve done this, or you’ve never done this, there’s a good chance you will need to make some changes. In that case, we would recommend considering some of the questions below as you prepare to make adjustments:

  • How far off is my overall allocation?

  • Do I have any new cash I plan on investing?

  • Can I make changes without creating any additional tax for myself?

  • If not, how can I limit additional tax by making adjustments?

The goal is to get as close as possible to your ideal allocation. Using new cash is a great way to do this along with making changes to your tax-deferred accounts.

None of the changes you make in tax-deferred (401k and IRAs) create any taxable income. This means you can sell out of holdings in those accounts without having to worry about capital gains or think about taxes.

If you can’t get to your desired allocation with those strategies and you have access to a 401(k), another option could be to change how new money is invested into your account each pay period. This may take longer to get to your desired investment mix, but it’s a strategy.

In Conclusion

The goal of this exercise is to confirm your investments are aligned with who you are as an investor and your goals. We recommend doing this once per year, but no more than quarterly.

What this is not, is an opportunity to go make wholesale changes to your investments. Once you have a good plan and set allocation, the best thing you can do is leave it alone.

Check it periodically to make sure your allocation is still good and continue saving. You’ll be happy when you look back 20-30 years from now.

Did You Know?

The more frequently you look at your investments, the riskier investing will seem. This is called myopic loss aversion and can lead to making changes based on short-term results. This ultimately leads to worse overall returns over your lifetime.


“Bonds are the underwear in your portfolio – unexciting and not much thought about, but select the wrong pair and you’ll be surprised at just how uncomfortable you are.”

– Dr. William Bernstein

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