(PUB) Investing 2015

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.

Mistake 1

Basking in the Glow of the Wealth Effect

If you have a sizable stock position and you haven’t

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-

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

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.

Tips for Your Midyear Checkup

Portfolio Matters

Christine Benz