Year in Review: Time to Check in with Your Retirement Portfolio

The end of the year is often an ideal time to reflect and assess. And that’s especially true when it comes to your retirement portfolio.
The end of the year is a time for reflection. In matters of finance that often means running some numbers.
How did your retirement portfolio fare in 2014, and how does that performance compare with the major stock indices?
With just days remaining until 2015, it’s safe to say it was a good year for stocks. The S&P 500 index, the benchmark indicator for the broad market, is up about 12%; the NASDAQ 500 is up close to 15%; the Russell 3000 Growth Index is up around 13%. And that’s just a sampling.
Certainly, if your retirement portfolio had a down year or grew only in the low single digits, it’s time to take a serious look at your allocations. But even if your investments are matching or outpacing the broader market, you still should take a hard look at your holdings to consider if they may be overvalued.
In short, regardless of what sort of returns you saw in 2014, you need to check in with your retirement portfolio as we enter a new year. Here are some key questions to get you started.
How’s the trajectory?
–If your retirement portfolio matched or surpassed the market, your trajectory is good. But that doesn’t mean you can set your holdings on cruise control. Take a look at your individual investments and consider whether they may be overvalued, or if their recent growth could be impacted by any new economic trends such as rapidly falling gas prices. Yesterday’s winners will not necessarily be tomorrow’s winners and stocks in certain sectors such as technology can be especially volatile.
On the other hand, if you’re feeling comfortable with the size of your nest egg and would prefer safe and steady over high-risk and high-growth, you may want to consider some more stable investments such as dividend stocks.
–If you’re underperforming the market, try to locate the source of weakness and consider whether it’s simply a poorly performing investment, or a holding that’s intentionally more conservative. If it’s a poor performer, review how long it’s been lackluster and consider that the longer stocks underperform the market, the less likely they are to reverse course. It can sometimes make sense to just unload a stock that has steadily underperformed, but if it’s a mutual fund that’s lagging, you may want to decrease your exposure more gradually.
In either case, don’t just chase the market. A few stocks may be perennial winners but the mix of winning investments is always changing. Look forward, not back. Seek to adjust your portfolio, but use past stock performance only as a starting point to inform your investments.
On the other hand, if it’s just that you’re a conservative investor, consider whether you need to be so cautious based on your individual timeline. Calculate what you might have earned if your holdings had grown in the low double digits. Take a look at your individual timeline to consider whether it might make sense to hold more high-growth securities.
What’s your timeframe?
We’re all getting older. While moving a year closer to retirement doesn’t necessarily mean you should reduce your risk exposure, many investors saving for retirement like to gradually shift their allocations. Bonds, typically paying a relatively low but guaranteed return, are a good way to diversify your portfolio and balance some higher-risk holdings.
How’s the bottom line?
Even the strongest growth trajectory can’t entirely make up for the fact that you’re just not saving, or investing enough. If you’re seeing strong growth in your portfolio but aren’t getting where you want to be, you’re going to have to start saving and investing a little more.
This is a simple solution … but it’s not necessarily easy. Gradually increasing automatic retirement contributions can be a relatively painless step in the right direction. As time goes by, seek other ways to save and invest more. Tax refunds and raises are both good opportunities to put more money toward your retirement. And if you’re refinancing your mortgage at a lower interest rate, that could also free up some income for retirement savings.
Finally, what are your personal goals?
While a secure retirement is a universal goal, every one of us has our own unique circumstances. Retirement for you may mean living a simple life on a shoestring budget, continuing to work but at a slower pace, traveling the world, establishing a foundation or even footing some hefty college bills. Decisions like stocks, bonds or cash; buy, sell or hold; low, medium or high risk need to all be informed by your own definition of what it means to retire.

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