How to Evaluate Investments Investments Evaluation

To evaluate your investments, you must consider your goals and why you chose these particular investments to begin with.  Are they serving their purpose? Are you pleased with the results?  Have your needs changed since you initiated the investment?  Has the management changed?  Has the market changed?  And do you need to re-balance?

Diversification is a good thing, but you must keep track of your goals.  As we age, our goals may change to more stable, balanced or bond funds or income needs – steady dividends, versus the higher risk-tolerance of the young.  Many are playing catch-up with retirement funds, or planning for growing families.  Make a time-line of how much you anticipate needing over the years.

Then, go back and look at what you have.  Remember that real estate is conservative at this point, a very long-term investment – not the old flips of several years ago.  Count your home in with the assets that are slow-growth, a back-up of equity.  Decide what is short-term and semi-liquid, and what is to be held for the long-term.   A good portfolio contains all types of funds and accounts.  And then they may change with your own individual circumstances!

Read about trends and the market.  Commodities and global investments will be taking on a new importance in this next decade, as many older institutions and financing have changed.  Follow the news in the Wall Street Journal, on channels like CNN, MSN, Bloomberg, the financial websites such as Forbes, Money magazine, Suze Orman, Motley Fool, big investment firms like Vanguard, Fidelity, ING and T.D. Ameritrade, etc.  Even Yahoo has links and articles to give an overview of what is happening.  Check out some of the contrarian sites like Whiskey and Gunpowder, and Stock Gumshoe.  It is fascinating to see all the different spins put on our investments.

Now, the hard part is to apply this to yourself.  Only you can know what you are able to afford to invest after your basic expenses.   Are you over-extended?  Consider staggering the maturity of CDs or bonds and keep track of tax implications of selling short-term investments.  Some people do well with an automatic deposit into investment funds.  Others do the yearly last-minute IRA contributions for tax purposes.  Always have some cash on hand, the old six months of subsistence and more, if you have dependents.

To stay on top of things, you should do at least a quarterly evaluation of your investments.  Harvest profits at the end of the year, or hold into a new tax year if you have earned close to a limit in one bracket.  If you have made a sound profit, do not stay overly-attached to one stock.  It may be time to sell if it has become overvalued.  You can always reinvest later, if it was still growing.  Remember why you bought it – was it for long-term growth and dividends, or was it speculation?  Is it a five-star solid company?  Has anything changed?  Write down your intentions when you buy a stock or a fund, and if it has not met your goals, let it go. 

Are you an Idealist?  What are the holdings and the politics of the companies or funds that you own? Has your risk-tolerance changed?  Look seriously at the cash reserves of companies, and their ratios of pay-out and income.  Don’t take advice from people with a stake in the company.  Read the disclaimers and the fine print.

It takes some work to manage investments.  Evaluating can be a challenge and a puzzle, but it’s time well spent.  You will figure out your priorities with a bit of consideration.  Again, when will you need this money or income from the investment?  And, of course, the bottom line – is this really paying off?