(PUB) Investing 2015

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Tips for Your Midyear Checkup Portfolio Matters | Christine Benz

folio growth is apt to come more from investors’ own contributions and less from market appreciation. Smooth sailing for both stocks and bonds can also stoke investors’ appetite for risk-taking with their portfolios; equity-market volatility, as measured by the CBOE Market Volatility Index, has been quite low. The S & P 500 has had just a handful of losing quarters over the past five years—the second quarter of 2015 was one of them—and even then the losses have been extremely minor. Not only does that make it tempting to let winners run—and leave an ever-growing equity stake unchecked—but inves- tors might also be inclined to build new positions in outperforming but higher-risk market sectors, thereby bumping up their portfolios’ volatility potential at an inopportune time. On the short list of investment types to think twice about adding this late in the cycle are small- and mid-growth stocks (and funds), as well as biotechnology names. In the bond space, investors mulling additions to high-yield bonds should consider whether currently meager yields are adequate compensation for the risks of the sector. Mistake 2 | Underappreciating Defensive Players In a similar vein, very strong returns from high-risk asset types tend to undermine the case for defensive portfolio constituents, whether stock or bond. It’s easy to forget the market downdraft of 2008 , when many such defensive players more than earned their keep. High-quality bonds, with their meager yields and low-single-digit five-year returns, are the ultimate "what have you done for me lately?" investment; it’s easy to overlook their merits as shock absorbers in an equity-market sell-off. Many defensively minded equity funds—stalwarts like Jensen Quality Growth JENSX and AMG Yack- tman YACKX , for example—have also generally disappointed during the rally but would likely hold up well during a stock market shock. Mistake 3 | Getting Lost in the Forest Morningstar.com’s Portfolio Manager is a terrific resource when checking up on a portfolio, but it’s easy to get distracted or overwhelmed by all the data.

When it comes to checking up on your portfolio, a policy of benign neglect invariably beats too much monitoring. Investors who pay attention to their portfolios' daily values may find themselves berating themselves during the market's periodic downdrafts or congratulating themselves too much when their balances are fat. Worse, too-frequent portfolio monitoring can lead investors to tinker with their portfolios’ positioning and holdings more than is desirable or necessary. They might be inclined to adjust their stock/bond/cash mixes based on short-term macroeconomic events, for example, or give a fund the heave-ho after just a short period of underperformance. Taking a long view is usually more helpful. For most investors, a quarterly, semi- annual, or even annual portfolio checkup is plenty. If a midyear portfolio review is on your to-do list, here are four additional mistakes—in addition to checking up too frequently—to avoid. checked your portfolio’s value for a while, it’s a good bet that you’ll be pleasantly surprised when you look at your balance. Even though stocks have encountered some turbulence in the past month— and interest-rate-sensitive bonds have performed even worse—the past several years have been tremendously placid for both stock and bond investors. But with enlarged portfolio balances comes the potential for behavioral errors. Accumulators may think they can pull back on their savings rates, while retirees may feel they can safely take higher payouts. In reality, however, higher market valua- tions mean they should be bumping up their savings rates and reducing spending. After all, future port- Mistake 1 | Basking in the Glow of the Wealth Effect If you have a sizable stock position and you haven’t