Portfolio Management Checklist

Checking in on your portfolio at least once a year—whether on your own or working with a financial professional—can help you make sure your investments are helping you accomplish your goals. 

You can use this checklist see how your portfolio stacks up. 

Start by reviewing your financial goals. Goals are the foundation of a financial plan and can include saving for retirement, education, a home, or leaving money to heirs. Major life changes such as marriage, divorce, having children, getting a new job, or retiring can cause goals to shift or evolve. If your goals have changed, make sure your plan reflects those changes.

Next, you should examine your spending and revisit your budget to confirm your spending is aligned with your savings and investing goals. 

Finally, you should take a look at your emergency fund. Make sure you have enough set aside to cover three to six months of expenses should you lose your income temporarily or get hit by a major unexpected expense.

You should also review your portfolio contributions. You can't control how the market performs, but you can control how much you save and invest. Consider automating contributions to your retirement plan if you haven't already, and if possible, you could even increase your contributions, say, on an annual basis. Consider funding an IRA and contributing to a tax-advantaged Health Savings Account. The more you set aside, the more secure your future may be. Open enrollment, when you are reviewing the rest of your benefits, is a great time to make such decisions. 

Also, if you're over age 50, consider taking full advantage of catch-up contributions. Those over age 50 may be able to contribute more to their tax-advantaged accounts. As a reminder, employees who are 50 and older are allowed to contribute additional money to their employer-sponsored retirement plan, known as a catch-up contribution. For 2024, the catch-up contribution is an extra $7,500 on top of the $23,000 limit for everyone else, for a total limit of $30,500. 

There are no hard and fast rules about how much to diversify, but in general, the larger the number of holdings, the greater the diversification benefits. 

To begin with, your risk capacity and risk tolerance can help you decide on a strategic allocation comprising major asset classes like stocks, bonds, and cash. After that, you could consider further diversifying your portfolio in a couple ways:

• Within asset classes so you're not too concentrated in any one market sector (e.g., technology or health care), company, company size (e.g. large cap, mid cap, small cap), or country.
• By mixing investing styles through a combination of both value and growth stocks. This will help reduce the risks associated with investing strategies that perform better or worse in certain markets.

For most investors, a bond portfolio composed primarily of high-quality, investment-grade government and corporate bonds is a good place to start. Depending on your risk tolerance, you could also consider adding high-yield bonds (also known as junk bonds) or foreign bonds when constructing globally diversified portfolio of bonds.

Stock or bond mutual funds or exchange-traded funds (ETF) can offer broad diversification with a relatively small amount of money.

Rebalance your portfolio back to your strategic allocation at least annually by trimming down positions that have grown in value while beefing up those that are falling short. For example, if your tech shares have boomed, while your energy shares have lagged, you would sell some of the tech and add more energy. Not rebalancing may cause your portfolio to either take on too much risk or to become too conservative. 

When deciding what to sell, consider looking for tax-loss harvesting opportunities within your taxable accounts. In short, if you sell an investment at a loss, you can use that loss to offset any taxable gains and/or $3,000 of ordinary taxable income, thereby lowering your overall tax bill. 

Cash can have a home in any diversified investment portfolio, helping to reduce portfolio risk, provide stability, and potentially generate yield on the money you need for specific goals like establishing an emergency fund or making a down-payment on a house.

There are a few options to consider for savings and investment cash:

• A yield-bearing savings account can be used for cash that you've set aside for an emergency or that you're planning on moving to a checking account soon. This type of account probably won't offer the highest yield, but you'll be able to access your cash immediately, although they may have monthly withdrawal limitations. Savings accounts are insured by the FDIC against the loss of your money up to $250,000 per depositor, per FDIC-insured bank, based on account ownership type.
• A money market fund is a type of mutual fund designed to keep your capital stable and liquid. Such funds invest primarily in high-quality, short-term debt securities. If you're willing to wait a day to access your cash,¹ you might consider investing in money market funds because they can offer higher yields than a savings account. Although yields fluctuate, such funds strive to preserve the value of your investment. Not all money market funds take the same level of risk, so before you invest be sure to know what credit risks a money market fund takes and how it mitigates those risks. Money market funds are considered securities protected from brokerage failure by Securities Investor Protection Corporation (SIPC).
• A Certificate of Deposit (CD) is a type of savings account issued by a bank that offers you a fixed rate of return in exchange for locking away your funds for a set period of time (the "maturity date"), generally between 3 months and 5 years. CDs may be appropriate if you have a slightly longer time horizon or know you won't need the money immediately. Generally, the yield on a CD is higher the longer your money is invested and is typically (but not always) higher than yields on individual U.S. Treasury bonds or money market funds. However, if you need to withdraw the money sooner than expected, you may be charged an early withdrawal penalty and, if the value of your CD has fallen, you may receive back less than the premium at maturity. CDs are insured by the FDIC against the loss of your money up to $250,000 per depositor, per FDIC-insured bank.

Retirees should consider keeping one year of living expenses in cash (held in an interest-bearing checking account or money market fund) and another two to four years in other stable short-term investments, such as short-term bonds or certificates of deposit (CDs). If you're subject to required minimum distributions (RMDs), take those into account when considering cash flows.

Fees eat away at returns. At the account level, understand what fees you are paying and make sure they seem reasonable to you. 

At the fund level, actively managed strategies tend to charge more than passive strategies, but they offer the chance to outperform whatever benchmarks they're tracking. Make sure you're comfortable with the fees on active strategies and whether the strategy has compensated for that fee historically. For passive strategies, check if there are cheaper alternatives that also closely track their benchmark. 

Consider making use of tax-advantaged accounts:

• Save enough in your employer-sponsored retirement plan—like a 401(k)—to get any company match, if your employer offers one. With pre-tax contributions, you'll defer taxes until retirement and reduce your current taxable income. With after-tax Roth contributions, you'll pay taxes now—but your money can potentially grow tax-free and you won't owe taxes when you withdraw it. (Roth contributions can be withdrawn at any time, while earnings can be withdrawn tax-free after age 59½, but only if you first contributed to the account more than five years ago.) 
• Take advantage of a Health Savings Account (HSA), should you have access to one along with a high-deductible health insurance plan. Contributions to an HSA are federally tax-deductible, reducing your taxable income, and withdrawals for qualified medical expenses are also free from federal taxes. Depending on where you live, you may get a break on state income taxes, as well. Assets in an HSA can also potentially grow free from federal taxes if invested.
• Maximize your tax-advantaged retirement accounts. If you're already contributing the max to your employer plan or don't have one, consider also using a traditional or Roth IRA, or both. 
• Consider a taxable brokerage account to invest even more. There's no up-front tax break, and dividends and interest are taxed in the year they're earned. But if you hold assets for more than a year, you may qualify for a lower long-term capital gains tax rate. Tax-efficient investments (like certain municipal bonds) may also offer tax benefits. Losses may be deductible. And the IRS won't restrict contributions, withdrawals, or how you spend the money.

Finally, make sure you consider asset location when investing. Investments are taxed based on the account types they are held in. Make sure you're taking full advantage of tax-advantaged accounts first. Place more tax-inefficient assets—investments you plan to hold for a year or less, core bonds, and actively managed funds with high turnover—in tax-advantaged accounts first and more tax-efficient assets—investments you plan to hold for more than a year, municipal bonds, and ETFs—in taxable accounts.

As you go about reviewing your investments, try not to let current market conditions drive your decisions. Markets will inevitably rise and fall, but these gyrations are less important than your progress toward your own goals. As long as your portfolio is helping you move closer to where you want to be, you should be able to take market fluctuations in stride.