It’s always a good idea to do an annual review of your savings and budget; here are a few questions you can ask yourself to help with your investment reviews:
Do your investments meet or exceed your benchmarks and goals over the long-term?
It is important you understand the returns you require to meet your objectives. This is called a personal benchmark and it helps you assess your level of returns. Unit Trust Investments such as unit trusts have their own benchmark, which represents their goals. Make sure to focus on the long-term performance over a time period, which is comparable to the time period you require to meet your goals.
Are your investments performing as expected?
Unit trusts managers provide monthly fact sheets, which define the unit trusts objectives and strategy. Most investment managers make these available via their websites. Any performance assessment you do should reference the unit trust’s stated mandate. For example, a low-risk unit trust should not show any large variations in performance.
Are there any big changes at the investment firm(s) you use?
Emotional responses to poor short-term performance can lead to switching, which sees you leaving a poorly performing unit trust to buy one at the top of its cycle. Sometimes a firm will lose key members or there may be ownership changes, which may influence their long-term track record. Therefore it’s always a good idea to do an annual review of your investment firm to see if you’re still comfortable with the people caring for your money.
Have any new opportunities or risks emerged?
Timing investments is very difficult, but it can be useful to review whether the markets are at a very low or high point, which gives you the option to take on more or less risk.
Have your needs changed?
Big life changes may require you to reconsider your investments to see if they meet your evolving needs.
Percentage growth is an easy metric to use in investment assessment, but it doesn’t account for risk. However, a risky investment may not suit your temperament, which may lead to switching. Your returns will be reported as an unannualized and annualized percentage. Annualized returns give you the percentage earned per year, while unannualized returns represent the percentage over a certain time period. Simplify your planning by using the annualized returns, since it’s easier to plan for the annual target than it is for the total return. Do not be concerned with investments that show short-term fluctuations: Always review the compound average over time.
It’s important to regularly review your investments. Too much or too little can be dangerous since our emotions tend to get the better of us leading to possible losses. An annual review strikes the perfect balance. While it’s not long enough to adequately review a medium to long-term investment, it does give you a better understanding of your investment performance and allows you to review your choices along the way.
A review checklist:
- Define your review period, since volatile investments require more time between reviews.
- How do your investments compare to your personal benchmarks?
- Perform a needs analysis to see if you need to redefine your objectives.
- Check the markets to how your investments performed against the market conditions.
- Review and understand your investment factsheets. They give you a better insight into how your returns will be realized and it is important to understand the returns relative to the market and objectives of the unit trust.
If this is a bit overwhelming then consult a good independent financial advisor to help you make sense of it all.