Best Tips for Managing Your Portfolio

02/22/2012 5:30 am EST


Charles Rotblut

Vice President, The American Association of Individual Investors (

The American Association of Individual Investors’ Charles Rotblut shares some key advice on monitoring, balancing, and selecting investments for your portfolio.

I want to know if the individual investor thinks that buy and hold is dead.

I don’t think they do, and there is a big misconception about buy and hold.

The problem is, people think buy and hold is buy and forget. In realty even if you’re a long-term investor, you need to stay proactive. Companies change, the economies change, industries change.

It’s good to buy and hold because it’s easy to second-guess yourself, but you need to make sure the reasons you bought the investment still apply. That means regularly reviewing your investments, making sure that the fundamental characteristics that made the stock attractive are still attractive.

If so, you’re better off holding on to the stock than trying to guess which way the market is going to move. Even professionals have cracked crystal balls, and we never know exactly what the future will bring.

How often do you recommend reviewing your situation?

I think if you own stocks, it’s good to look at your stocks at least once a week. If you own mutual funds, you can look at them once a quarter.

The big thing is, you don’t want to look at it daily, or particularly every hour, because your emotions can take over. You really want to look at your stocks and your funds and your bonds from the perspective: has anything changed that would actually cause me to no longer like the stock?

That’s not really looking at price; it’s more looking at the fundamental characteristics, looking at the news flow, looking at earnings, looking at valuation. If everything is still going right with the company, then you are better off holding the stock rather than trying to guess when to get in and get out based on price action alone.

How does the individual investor manage the emotions of investing?

Well, one of the things I like to tell people to do is actually write down the reasons they bought the stock, and also write down the reasons they would sell the stock before they buy it.

The reason is before you own the investment, you have no attachment to it. If you uncover something that is negative, you’re going to step back and think, "Boy, I’m glad I didn’t buy it".

If you write down the reasons you might sell it, when something bad happens, you actually have a framework where you can look at your own notes—and they’re your own rules—and decide does this warrant me selling the stock or has something happened that’s really not so bad and I’m just scared by the markets. Just having those rules can actually allow you to control your emotions.

How about that still important to the individual investor?

I think diversification is very important. Again, we can’t predict the future, and we certainly can’t predict what asset class will do best in the future.

If you diversify, you increase your odds of being in the right sector at the right time. Plus because different asset classes, including bonds, have different return characteristics, you can actually diversify your risk while increasing your return at the same time.

How about rebalancing, and how often should you even think about rebalancing your portfolio?

Sure, rebalancing is important if you are going to diversify. The reason why is rebalancing is actually adjusting your allocations back to your targets—the percentage you hold in stocks, the percentage you hold in bonds, and perhaps the percentage you hold in commodities like gold.

Vanguard recommends rebalancing your portfolio twice a year if your allocations are off by 5% more than target. They actually did research showing that it finds a good mix between controlling costs but still controlling risk at the same time.

An ideal time to do it is actually in November and April, because November to April is actually the best time to be in stocks, and April to really November is actually the best time to actually have a heavier allocation to bonds. Those might be the opportune times to actually rebalance your portfolio.

I think it’s more important that you at least look at your portfolio at least once a year for rebalancing purposes, than be concerned about what month you’re actually doing the rebalancing in.

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