One thing that often happens in relationships is you settle into a routine with your significant other. While routine can be reassuring, it can also lead to a rut, which may be tough to break out of.
The same principle applies to your investments. If you’ve put your portfolio on autopilot and you’re just going through the motions, your enthusiasm for investing—and your returns—may begin to wane. If you’re feeling lackluster about your investments, Valentine’s Day is a great time to reconnect and show your portfolio a little love. Here are four ways to do just that.
- Spice things up with something new
As an investor, it’s important to know the boundaries of your comfort zone. Stray too far off-course and you may expose yourself to more market risk than you’d like. At the same time, it’s possible to get too comfortable and not push the boundaries enough. When that happens, diversification suffers.
Seventy-five percent of global investors say they’re interested in exploring strategies that can help them better diversify their portfolio.  At the same time, 60% of investors are more focused on avoiding loss than maximizing growth.  If you’ve taken a vanilla approach to investing so far, it may be time to consider branching out.
There are a couple of different ways to increase diversification. The first is to invest in an entirely new asset class. For example, if the bulk of your investments consists of stocks, you could make a foray into real estate. A simpler alternative is to choose an investment that offers broad diversification in one convenient package.
When you invest in motifs, for example, you’re investing in a basket of up to 30 stocks and exchange-traded funds (ETFs). You can choose a professionally prepared motif or custom build your own, based on the sectors you’re most interested in. Rather than trying to diversify with multiple investment, you can get theme-based diversification in a single and convenient package.
- Banish toxic fees
There are certain things in an investment relationship that are deal-breakers and high fees rank near the top of the list. Over the last decade or so, the trend has been towards a decline in management fees. Among defined contribution plans, for example, the average expense ratio for 2015 was 0.46 percent, compared to 0.57 percent in 2006. 
While that’s encouraging, fees can still nibble away at your returns if you’re not paying close attention. For example, assume that you’re 35 years old and you have $50,000 saved in your employer’s retirement plan. You contribute $10,000 annually until age 65, earning a 6 percent annual return each year.
If you’re paying 1 percent in fees per year, you stand to lose approximately $93,000 to fees over the course of your career. Increase that to 2 percent annually and the total amount you’ve paid in fees comes to more than $250,000. That’s a sizable bite that’s being taken out of your retirement assets.
Reevaluating the amount you’re paying in transaction and management fees for your investments may bring some unpleasant realities to light but when it comes to saving money, you can’t afford to be in the dark. If you’ve got some investments that are dragging the rest of your portfolio down with burdensome fees, it may be time to move on to less expensive pastures.
- Let go of the past (performance)
Breaking up is hard to do and sometimes, you may be tempted to hang on to a particular investment because it’s treated you well in the past. That attitude may be linked to a phenomenon known as recency bias. This is a tendency to focus only on the most recent history, rather than looking at the larger picture.
When it comes to investing, recency bias can cause you to develop tunnel vision where your portfolio is concerned. Instead of looking at your long-term plans, you get caught up in attempting to duplicate the most recent performance of your investments. The problem is that it’s difficult to predict with any certainty which way the market will move.
Chasing performance, rather than choosing investments that align with your goals, can backfire if you’re not able to generate the kind of returns you’re anticipating. Letting go of the past and keeping your eyes on what lies ahead may be the smarter strategy for keeping your portfolio on-course.
- Plan your future together
When you feel like your investments have stalled it may be because you’ve lost sight of your goals. If so, you’re not alone. Twenty-one percent of investors say they’re clueless about what their top investment priority is.  If you’re unclear about what your intent is in choosing certain investments or you’re navigating the road to retirement without a map, it’s time to do some regrouping.
Look at the various investments in your portfolio. Can you remember why you invested in them in the first place? Do they still fit your original goals? Are you even sure what those goals are? What are you interested in doing moving forward?
The more thought you put into answering those questions, the easier it becomes to get a clear picture of where you’re headed if you stay on your current path. From there, you can begin whittling away the goals that you’ve outgrown and create a new and improved investment vision so you don’t end up back in the same familiar rut.
Natixis Global Asset Management. “2016 Global Survey of Individual Investors,” May 2016.
Wells Fargo. “Many Americans may be investing too conservatively to meet their retirement goals, according to Wells Fargo study,” October 11, 2016.
NEPC. “NEPC 2015 Defined Contribution Plan & Fee Survey: What a Difference a Decade Makes,” October 2015.
Barrington, Richard. “Survey: Many Americans are effectively investing blindfolded,” MoneyRates.com, April 13, 2015.
Published at Tue, 14 Feb 2017 18:03:34 +0000