When It Makes Sense to Adjust Your Portfolio

As a long-term investor, there may be some situations where it may make sense to alter the investments in your portfolio.

If you are a long-term investor and focused on a "buy and hold" approach, you may find it challenging to change your investment lineup. However, it may make sense to adjust your portfolio in some situations. Which is why switching investments could be a sensible move if:

You are nearing retirement.

Many people close to retirement focus on preserving their retirement assets rather than seeking pure growth. They decide it might be prudent to dial back their investment risk because they understand that they will have less time to make up for any short-term investment losses. As retirement draws closer, you may decide to move part of your investments to less risky asset classes, such as fixed income (e.g., bonds) and cash equivalents. However, remember that many investment experts advise retirees to keep some stock investments in their portfolios for their potential inflation-beating returns.

You have experienced significant changes in your life.

Major life changes may impact your financial goals and timeframe for accomplishing them. If you experienced the loss of a loved one, got married or divorced, or had a child or grandchild, you may want to reexamine many aspects of your life, including your finances and investing philosophy.

You are disappointed by the performance of your investments.

If an investment is falling during a market-wide decline, its sale may be shortsighted. But if you have an investment that has greatly underperformed compared to similar investments, as measured by a benchmark index over several years, you may be justified in selling it. The long-term underperformance of an investment can generally be a sign of trouble and may require you to take action.

Your portfolio has become unbalanced.

Asset allocation* is one of the important factors in determining investment performance. The types of investments you choose and the percentage you invest in each asset class of your portfolio impact your investing success. Your assets should be allocated based on your risk capacity, investment time horizon, and investing goals.

It is advisable to review your asset allocation yearly to see if it is still appropriate for your situation. A major increase or decline in the value of an asset class in your portfolio can affect your asset allocation. This could result in your asset allocation being more aggressive or more conservative than you originally intended. When this occurs, you may need to buy and sell some investments to reestablish the percentages you initially chose.**

While the decision to buy or sell investments in your portfolio can be complex, the guidance of a financial professional can be invaluable in determining what investments align with your circumstances.

*Asset allocation does not guarantee a profit or protect against losses.

**Portfolio rebalancing may create a taxable event if done outside of a retirement account.

The information and general descriptions found in this article are designed to help you understand some of the factors you should generally consider when evaluating the appropriateness of any strategy or investment within your retirement plan. Any description included is for informational and educational purposes and for your independent consideration only; it should not be regarded or viewed as advice or as a recommendation to take (or refrain from taking) any particular action. By providing this information, we assume that you can evaluate this information and the general descriptions found here to exercise your independent judgment. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice services. If legal, accounting, or tax advice services are required, you should seek the services of a competent professional.

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