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Follow These Steps to Update Your Portfolio for the New Year

portfolio review

The calendar recently switched from 2022 to 2023, but if you didn’t do a year-end review of your financial portfolio, don’t worry — there’s still time to take a look and fix anything that isn’t quite right before we get too far into this year. If you’re not sure where to start, financial services form Morningstar has a list of seven steps you can take right now to review your portfolio. If you want more help making sure you’re ready to go, consider working with a financial advisor.

Portfolio Review Step 1: Wellness Check

The first thing to do is to see if you’re making progress on your goals. If you’re saving for retirement, see if you’re on pace to have the amount of money you think you need after you stop working. If you’re already in retirement, see if you’re withdrawing money too fast and are in danger of running out of money during your retirement.

From here, you can make changes like putting more into your 401(k) each paycheck or cutting spending to get yourself back on track if needed.

Portfolio Review Step 2: Assess Your Asset Allocation

Asset allocation means how your money is divided up among different types of assets. You might have almost all of your money in stocks, for instance, if you’re young and willing to take some risks in order to potentially get big gains on the market. If you’re closer you retirement, though, you probably have a significant portion of your money in fixed-income securities like bonds to protect your savings.

The new year is the perfect time to look at your asset allocation and make adjustments. The events of the past year may have thrown your allocation off, or perhaps you want to respond to the volatile market by moving some money out of stocks and into safer investments.

Portfolio Review Step 3: Check in on Your Reserve Fund

portfolio review

While a lot of your money is going to be tied up in illiquid investments, make sure you have some money set aside as cash. Most people should have at least six months worth of of cash squirreled away so that if there is an emergency — like a medical situation or even just an unfortunate job layoff — you don’t need to worry about selling any securities to pay your mortgage or buy food.

Portfolio Review Step 4: Consider Risk Factors

You always want to see if your investments are putting you at a disadvantage. For example, you may find that within your stock investments you are overly invested in a single sector like healthcare, tech or energy. This may be by design, but it could also be something you want to fix. Being focused too strongly on a single sector puts you at risk if that sector tanks, so make sure you look for any potential problems.

Portfolio Review Step 5: Consider Inflation

Inflation became a serious issue for investors in 2022. While the rate has slowed over the past few months, inflation can still mess up the most carefully planned portfolio. Look at your portfolio and cider if you need more inflation-hedging investments like treasury inflation-protected securities or I Bonds.

Portfolio Review Step 6: Consider Each Investments

You’ve looked at your portfolio broadly; now it’s time to drill down. Look at how the companies and funds you’ve invested in have performed over the past year and beyond, and look for expert opinions. A down year doesn’t mean you should automatically sell a stock — in fact, selling at a nadir for a stock could be the worst option. Still, sometimes you have to move on, so considering each investment is an important step.

Portfolio Review Step 7: Make Tax Adjustments

portfolio review

You’ll file your 2022 taxes in a few months. While it is too late to do much about your taxes for then (not too late to do anything, though; you can make IRA contributions that count toward the previous year until tax filing day on April 18), you can start looking ahead to your 2023 tax bill. Consider if there are any charitable contributions you want to make this year and consider how much money you’ll put into retirement accounts, all of which will lower your tax bill.

The Bottom Line

It’s a new year, and just like you get a physical each year, you should give your portfolio a checkup. Follow the above steps to cover your bases and get your finances in tip-top shape for 2023

Financial Planning Tips

  • A financial advisor can help you make sure you’re making the right decisions about your money. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Want to see how much an investment will be worth down the road? Get a sense with SmartAsset’s free investment calculator.

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