How to Evaluate a Portfolio

by Gilberto Fuentes ; Updated July 27, 2017

Items you will need

  • Annual reports for each of your securities
  • Your financial strategy plan
  • Previous year performance for the investments in your portfolio

Using an investment portfolio is the most common way to implement your investment strategy. A portfolio is a collection of investments from different sectors of the economy. Each economic sector comes with its own particular risks and business cycles, so if you invest all your money in only one type of security, you might lose money during a downturn. The portfolio is where you can track progress, discover opportunities, and minimize the risk of losing money. To track changes in the market and to monitor your strategy, you might need to evaluate some key areas of your portfolio.

Evaluating your portfolio

Step 1

Research the securities in your portfolio and determine whether there is a risk of loss in the short term or long term. Investors generally accept that virtually all investments expose their money to some degree of risk. This is a primary reason behind government guarantees of certain investments such as certificates of deposit, savings and checking accounts, and individual retirement accounts. Securities aren't guaranteed by the federal government, and you can lose some or all of your money. In addition to market volatility, public companies can be plagued by bad management decisions, bad credit, and declining demand for their products. Evaluating your portfolio for risk is one of the key ways to ensure that your financial strategy works to your benefit.

Step 2

Diversify your portfolio with securities from different sectors of the economy. Investments commonly found in a portfolio can include cash, stocks, bonds, CD’s and IRA’s. If you lose money in one part of your portfolio, you might make it up in another. Investors commonly refer to this portfolio variety as diversification. A diverse portfolio includes stocks from different industries and companies instead of just a single industry or a single company. The key point of diversification is that your money might be exposed to less risk and deliver more consistent returns.

Step 3

Review your portfolio to ensure that you are making a return on your investment. An important evaluation point for most investors is whether the portfolio is making any money. If you are aiming to earn a certain annual yield, review the investments in your portfolio and determine the strengths and weaknesses in your strategy. Review the costs associated with your investments, as these often eat away at gains.

References

About the Author

Gilberto Fuentes draws on his experience in financial services to develop copy for websites in the United States, United Kingdom and Latin America. His work has been published in the online editions of the "San Francisco Chronicle" and the "Houston Chronicle." Fuentes lives in New York and holds a dual Bachelor of Arts in English and economics.