Q: If I asked you to review my portfolio in early retirement, what kinds of things would you want to know?
A: That is a wonderful question with many answers. I’d begin with how old you are, and how much money have you accumulated to draw funds from. Next would be to know if you have any other sources of income besides this and Social Security. We’d tie this together by figuring out an honest assessment of how much you would like to withdraw as a percentage of savings in order to live the lifestyle you desire (and are used to). Also, how long does the money need to last? Is the money for two early retirees in good health, or something else?
I’d want to know how you tolerate the swings in market prices that occur regularly. Do they make you anxious or do you ignore them? How did you handle the marked drop in prices in 2008-’09, 2020, and again recently? It makes a big difference whether you sold to cash, or ignored the markets, or were spurred to invest more with lower prices.
Do you understand the risk/benefit ratio of owning individual stocks vs. funds? Do you understand the “usual” volatility of stock market prices? Do you understand the relationship of interest rates and economic cycles with different types of bonds? Do you have either too little or too much of a “liquid” reserve?
Have you been managing your own money? If so, what’s the overall strategy?
How has your asset allocation been determined, and how has it changed over time (and in response to market conditions)? Is your asset allocation reasonable for the expectations you have for withdrawals as well as keeping up with taxes and inflation? If you have someone managing your money, same questions. Do you rebalance your portfolio periodically to restore your original asset allocation? Should you?
How has your portfolio performed over the last few years? We can look at how each asset class in your portfolio has performed and come up with a reasonable expected return for that time period. If your portfolio has not been on par with expectations (or you don’t know), perhaps it needs some changes.
Are you paying for expensive whole life insurance you no longer need? Do you have other “investments” that carry surrender charges or are hard to sell?
Who takes care of things when you cannot? Things happen, and an unwatched portfolio might be deleterious to your heir’s well being.
Simple, right? There is indeed so much more than “what stock to buy,” (although this is what the financial press focuses on). Consider all of these questions and have good answers either with or without an adviser in order to do a good portfolio review.
