(Article from Fall 2006 Profit Zone)

An annual physical examination is critical to ensuring long-term health. When it comes to investing, you and your portfolio can benefit from an annual fiscal examination to help ensure your long-term financial health. Reviewing your investments’ performance for the past year is a good way to measure how well your portfolio strategy is meeting your financial objectives. And gaining a perspective on how your portfolio performs over time will help you make well-informed investment decisions about the future.

Reviewing your portfolio and its performance for the past year also enables you to analyze your overall goals in light of any changes that may have occurred in your personal or financial situation. As you get older, your goals may shift from increasing annual disposable income, to saving for a child’s education, to ensuring a comfortable retirement. These changes should spur a review of your portfolio to make sure that it remains current with your needs.

Undertaking an annual performance review requires the right tools and information. You will need to have:

• A statement showing your portfolio composition and value at the beginning of the year
• A record of any withdrawals or deposits, including dividends and interest earned
• Records, including purchase price, of any investments acquired during the period
• A listing of all commissions and fees paid throughout the year
• A complete record of your portfolio’s composition and value at the end of the year

 By compiling and analyzing this information, you can develop an annual report card and use it to compare the performance of your portfolio with general market indicators, factoring in your tolerance for risk. In general, keeping a tight rein on risk also dampens the rate of return.

Once you have the information you need to assess your investment performance, review your results with a qualified financial adviser. A financial adviser can provide perspective and offer insight into investments that may better suit your financial objectives today.

If you find that your portfolio has underperformed the general market as measured by an appropriate index, you may want to review the mix of assets in your portfolio. Perhaps you have too little of your long-term investments in equities. Maybe you have built up a surplus of cash in your account that has the potential to earn better returns in a stock or bond investment.

If your annual review shows that you have greatly outperformed the broad market indicators, don’t quit your day job just yet. Take a moment to assess the risk of your investments and make sure your portfolio is appropriately positioned to weather the downs as well as the ups of the market. It maybe time to shift some assets from high-flying stocks to more conservative blue-chip issues, or to increase the percentage of your portfolio invested in fixed-income instruments.

Even if your portfolio’s results are in line with your expectations, it’s a good idea to review your overall investment goals as a result of any changes in your personal situation or in light of shifts in economic trends. Again, a professional financial adviser is your best source for advice on how to keep your portfolio in line with your changing needs and stay in good fiscal shape.