Reevaluating Your Portfolio

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Reevaluating your portfolio means periodically recalculating your investment selections. Use the ever-increasing amount of information about your stocks to ensure that your original investment decision is still applicable in spite of changes in the market, such as a downturn in the economy, or other circumstances, such as a change in your income and investable income.

Plain English

Reevaluating your portfolio means double-checking your investments at regular intervals. The stock market changes substantially from day to day, so it is very possible that as time passes your investment may no longer be the optimal place to put your money.

Whichever system you used initially to select your stock, you should use it again to ensure that the results are consistent enough to maintain your faith in the investment. In addition, since you now have tangible information regarding your stock's performance, you might want to consider using different methods to evaluate it.

The danger for most novice investors when they reevaluate their portfolios is that they place far too much importance on minor setbacks and changes. Reevaluating your portfolio is more about looking for major loopholes that you overlooked initially or evaluating unforeseen changes that now make an originally good investment bad. It is not the time to take out everything you own and reinvest it in something different. Exercising restraint is very important to newer investors for two reasons:

New investors are more prone to "play" with their investments. Hollywood is probably responsible for most of the portrayals of Wall Street and the world of investing, and, as with anything else Hollywood portrays, its idea of the world of investment is substantially more exciting than the reality. As a result, newer investors are often under the mistaken impression that if they are not trading their stocks (buying and selling), they are not getting the optimal return for their investment. Regular trading does make for exciting movies, but in real life it usually leads to a pretty dismal portfolio beset by broker fees.

TIP

Put another way, reevaluating your portfolio is about reaffirming that your original decision is still the correct one, not about trying to pick that decision apart.

By trading stocks as opposed to letting them sit, investors are not allowing their stock to perform to its fullest potential. Remember that the greatest ally you have in the stock market is time. The stock market is geared toward investors who buy stock and keep it, rather than those who trade it frequently.

Unlike the Las Vegas roulette wheel, capital gains and stock dividends tend to be highest among those that "let it ride" ”even, or especially , when the stock has taken a downturn. The time when your stock has suffered a loss is not the time to sell it (unless of course, you firmly believe it will continue to go down until the company goes out of business). By selling your stock then, you will suffer an investment loss. However, if you let your investment sit, odds are heavily in favor of the stock, again with time, recovering that loss and even making a profit. Don't be faint-hearted let it ride.

Remember, successful investing is not so much about buying and selling on a regular basis as it is about making educated investment decisions in the first place so that reaffirming your decisions later is not so difficult to do.

I l @ ve RuBoard