If your investment returns saw the end of 2016 come and go with more of a whimper than a bang, your portfolio could be long overdue for a shake-up.
The start of a new year is an opportunity to breathe some fresh life into your investments and leave lackluster performance in the dust. If you've been going through the motions or you've lost some of your passion for mastering the market, here's what you need to do to get re-energized for the year ahead.
Learn to recognize the signs of a rut. Before you can climb out of an investment rut, you have to first understand what it means to be in one.
Joshua Wilson, a partner and chief investment officer with WorthPointe Financial in Plano, Texas, recommends considering the motives behind your investment choices. "If you can't tell me why you own what you own, why you haven't changed it and why you haven't done something else by now, then you're in a rut," he says.
A rut can also be the result of a failure to pay attention to a changing economic climate, says David Louton, professor of finance at Bryant University in Smithfield, Rhode Island. "If conditions shift, as they have been doing lately, and you haven't re-evaluated your assumptions in light of the most recent trends, then you're flying blind," he says.
Louton says that hitting a lull with your investments is not so much a matter of your individual strategy as it is being able to explain why you've invested the way you have against the backdrop of the larger economy.
Think strategically before investing in a new asset class. Taking your portfolio in an entirely different direction can increase diversification, but it's not something you should do on a whim.
Robert Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pennsylvania, says investors should do their research before wading into uncharted territory.
"Some investors turn to real estate, which be a very sold investment but it can be problematic in that most real estate investments are local, highly concentrated, illiquid and require management," Johnson says.
Real estate crowdfunding and real estate investment trusts offer a way around those obstacles but they come with their own considerations. Johnson advises investors to consider the liquidity and fees of any new asset class they may be contemplating.
Whether investing in a new asset class makes sense all boils down to attitude, Wilson says. "If you're in a rut, it's probably because of a lack of will, skill, discipline or time," he says. "If none of those things have changed, then adding a new asset class may only make things worse."
Jeff Bishop, CEO of the Raging Bull investment portal, recommends establishing some ground rules for adding a new asset class.
"Once investors have identified a sector they want to allocate more of their portfolio to, they should set parameters for when they want to start making purchases," Bishop says.
"For example, if an investor decides they want more exposure in biotech stocks, it's not the best idea to go out and put all their money into those investments today," he says. Instead, they'd be better off spacing purchases out over several months and waiting for dips in the market to buy lower.
Rebalance with a purpose. Periodically rebalancing your portfolio can help to correct investments that have steered off course, but it's important to consider the bigger picture in terms of risk.
"Rebalancing can enhance short-term results in some periods but the main purpose is to keep your portfolio in an appropriate risk-adjusted mix of assets," says Gordon J. Bernhardt, president and CEO of Bernhardt Wealth Management in McLean, Virginia.
Bernhardt advises investors against rebalancing solely as an attempt to achieve higher returns without fully understanding their individual risk tolerance. He says it's also important to account for the cycles of the market and to understand how a repeat of the 2008 financial crisis or another tech bubble could impact your investments.
If you're not sure where to begin with rebalancing, Kevin Feldman, CEO of San Francisco-based Feldman Capital, suggests focusing on one aspect of your portfolio at a time, such as bond funds.
"If you own a lot of high-yield or longer-dated bonds, now might be a good time to think about shorter-duration bonds as the Fed is finally raising interest rates," Feldman says. From there, you can move on to re-examining your stock investments.
"Most people are still overweighted to the U.S. stock market, which has become increasingly expensive," Feldman says. "With a strong U.S. dollar and low interest rates abroad, it's a good time to think about switching some of your stock funds to international funds."
Know what you can (and can't) control. One of the worst mistakes investors can make when attempting to break out of a rut is paying too much attention to market timing, Johnson says.
"When one attempts to time the market, one has to make a series of good decisions -- when to get in, when to get out, when to get back in again," Johnson says. Instead of viewing investing as a series of sprints, investors should be looking at it as a marathon.
Adam Torres, CEO of Century City Wealth Management in Beverly Hills, California, says it's important for investors to tune out the background noise if they want to keep their goals on track.
"Having a solid financial plan is the way to stay focused despite what's going on in the market," Torres says. Over the long term, that narrower focus can pay off it if allows you to move past your rut and maintain solid portfolio growth over time.
Keep the momentum going. Once you've managed to get your portfolio moving again, you can't afford to rest on your laurels. "Even when market conditions appear stable, there's always change going on somewhere," Louton says. "Keeping on the lookout for subtle market developments that may be doorways to opportunity is a good way to maintain a healthy defense against complacency."
Bishop says if you feel yourself slipping back into old patterns, it's OK to take a break.
"Don't feel bad about stepping away from the market and looking back on recent trades," Bishop says. "Oftentimes, taking time to reflect on the situation you've put yourself in gives you the ability to come back and approach the market with a new mindset."
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