Monitoring Performance

After evaluating your portfolio based on its characteristics, the next step is to examine the overall results during whatever time frame you've chosen. How do these returns compare to the benchmark you've established for this portfolio and the long-term returns you're expecting? (Applicable benchmarks may include the S&P 500, the Barclays Aggregate Bond Index, or a specific sector index.)

Of course, your portfolio isn't going to return exactly what is expected each and every time you review it; the idea is for your portfolio to average out to that expected return figure over time. So if your portfolio hasn't met your average required return over whatever time period you've chosen, you shouldn't panic. Conversely, if your portfolio has returned more than you expected, you may not want to take that as a cue to increase your positions in those over-performing investments. In short, you should try to stick to your plan.

However, if your portfolio has suffered losses, you should make sure those losses are within the acceptable range you've determined you can afford to lose given your investment objective and time horizon. If they aren't, your portfolio may have more risk in it than you realized, and you may need to re-evaluate your holdings.

Read Next: Putting it All Together

The analytical tools described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision.