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The Short Answer

Year-End Portfolio Checkup in Five Steps

Troubleshoot problems now to improve your bottom line.


Many of the basic rules of investing are counterintuitive. For example, rising interest rates may be good news for those shopping for certificates of deposit and other short-term savings vehicles, but they're generally bad for bond funds. And here's another zinger: The lazy investor is often more successful than the hard-working one.

If you're checking in on your portfolio holdings every day--or worse yet, throughout the day--you may be tempted to trade more than you need to. In turn, you may run up high tax and transaction costs, and you're also more likely to chase hot-performing stocks and funds in the hope that they'll continue to outperform. That can be a recipe for disaster.

Because it is possible to shoot yourself in the foot with overzealous trading, I'm a big proponent of conducting a portfolio review just a few times a year--semiannually or quarterly. The purpose of this portfolio checkup is to systematically troubleshoot problem spots and identify changes you may want to make as part of your rebalancing program. (You should plan to rebalance your portfolio--remove money from those investments that have performed well and plow it into your portfolio's underachievers--at least every few years.)

Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.