Portfolio Investing: Do You Know Where you are Right Now vs. Where You’re Headed?

Aug 29, 2023 | Budget

Four people walk their bicycles along a beach in sunny weather. Text on the side reads, "Portfolio Investing: Do You Know Where You are Right Now vs. Where You’re Headed?" and "Stewardship Trust Advisors.

CEOs do it; athletes do it; in fact, anyone who needs to be able to achieve a certain level of performance in order to achieve a specific goal constantly assesses where they are in relation to where they want to be. This is to ensure that available resources are being utilized optimally at all time. It may seem OK to overshoot the goal, but if resources are being utilized in the wrong way – too inefficiently, too costly, too risky (or not the right kind of risks) – it will likely undermine the long term prospects of achieving it and, you certainly don’t want to undershoot the goal because that could be disastrous. A gap analysis, a sort of snap shot of your current situation, will tell you what adjustments need to be made in your portfolio investing plan to get you on track.

Portfolio Investing

Determining Where You’re Headed

For any long-term investment strategy to have the best opportunity for success, it must be based on a thorough assessment of your needs, priorities, investment preferences and your tolerance for risk and portfolio volatility. Goals must be quantified with measurable benchmarks, and, as in the case of planning for lifetime income sufficiency, they must account for actual needs, economic factors, and life’s uncertainties. In essence, that is where you’re headed – that’s your target.

Are You Where You Need to Be Right Now?

Your portfolio strategy should be calibrated to hit your target. But, over the long-term, targets have a way of moving. Strong market moves can shift the allocation of assets out of balance resulting in a mismatch of risk and return orientation. Suddenly your portfolio can be assuming too much or too little risk which can throw you off target. Although this can be addressed through regular portfolio rebalancing, a portfolio gap analysis will ensure your portfolio is still properly calibrated to hit your target.

Portfolio gap analysis helps you determine whether the resources you are applying to meet your investment goal are optimally utilized in all aspects of your portfolio strategy, including:

  • Asset Allocation: Is your equity-to-fixed income ratio most suitable based on your investment objectives and risk tolerance?
  • Portfolio Diversification: Is your portfolio properly diversified on multiple levels – across the right number of distinct equity asset classes; across global markets; across the broadest amount of securities?
  • Equity Risk: Does your portfolio emphasize enough value and small capitalization equities in an effort to increase longer-term return potential?
  • Fixed Income Risk: Does your fixed income allocation emphasize enough high-quality, short term bonds to dampen overall portfolio volatility?
  • Investment Costs: Is your portfolio structured in a way to minimize management expenses and transaction costs?
  • Portfolio Risk Profile and Efficiency: Does the risk profile of your portfolio still reflect your risk capacity and tolerance?

Portfolio Investing – A Thorough Analysis

A thorough portfolio analysis should be an essential component of your long-term investment strategy – that is, if you never want to be in the dark about where you are in relation to where you need to go.

At Stewardship Trust Advisors, we’re here to help you make sure that your long-term investment strategy is on track. Schedule a consultation today.

These weekly articles which are produced and distributed by Pilgrims Capital Advisors, Inc. contain information on topics about investing, tax planning, estate planning, asset allocation, insurance and many other financial subjects. Please note that they are very general in nature and must be applied to your own individual circumstances through the services of a trained or licensed professional that specializes in these areas. If you have questions or needs related to the subject matter of this article please contact us by clicking on the link below and we will point you in the right direction.

Pilgrims Capital Advisors, Inc. is a Registered Investment Advisory Firm located in the state of Michigan.

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