If you talk to a financial expert, he or she will likely advise you to start an investment portfolio as soon as possible. Opening a retirement account, purchasing stocks, ETFs, real estate, and other investments, and managing that portfolio carefully should yield strong returns that eventually compound – and lead you to wealth generation and potential early retirement.
Learning that the average annualized return of the S&P 500 is around 13.6 percent should make you optimistic. But what if you’re not making anywhere near that much? What do you do if your investment portfolio isn’t generating the return you expected?
Find Out Why You’re Losing Money
The first step is to figure out why you’re losing money. There are several possible explanations, each with a different solution:
- High expenses. You might be suffering the effects of high expenses. If you’ve invested in mutual funds, you might be responsible for paying a fixed fee (or a percentage of your gains) on a regular basis, which eats into your bottom-line profitability. If you’re investing in real estate, the high cost of repairs and maintenance, as well as vacancies, might be diminishing your results.
- Timing the market. “Time in the market” beats “timing the market” in almost every scenario. It’s tempting for new investors to try and time the market and buy at the absolute bottom of a curve in the hope of selling at the top. But this is practically impossible for even the most experienced investor to achieve consistently. Trying to time the market will more likely end in disappointment. It’s smarter to focus on assets that promise to develop over the long term – and hold them for months and preferably years at a time.
- Poor investment diversity. Sometimes, an underperforming portfolio can be blamed on optimization for one specific type of asset or market sector. If you invest too heavily in one firm, one industry, or one type of asset, you’re more likely to be subject to sudden and negative changes. You’d be better off diversifying your portfolio with a mix of holdings; that way, no single calamitous event can hurt you substantially.
- Decisions based on poor information. Be honest with yourself. Have you made any investment decisions based on “bad” information, such as advice from a random forum user you met only in passing? This happens to many new investors, and it’s nothing to be ashamed of … but you should learn from it and move on.
- General impatience. Good investment portfolios take time to develop. They grow over the course of years and decades, rather than weeks or months. Is it possible your holdings are solid, but you’re just being impatient? Take a close look at your assets and try to discern whether they’ll continue to improve for some time to come.
- Unrealistic expectations. Movies and news articles tend to glamorize investors who make it big, having earned millions of dollars with a genius play. Most consistently successful investors realize more modest returns over long periods of time, however. Set reasonable expectations for yourself.
Consider Getting Professional Advice
If you’re not sure which of the above factors might be hurting your portfolio, or you’re not sure what to do next, it may be time to consult a professional. You can talk to a general financial advisor for basic advice, or confer with a specialist in your area of interest.
For example, you can talk to a property management company about your property portfolio with the goal of obtaining a higher return. Chances are, the pro will be able to point out something you’ve missed, or suggest options you wouldn’t have considered.
Draft a New Strategy
Once you’ve collected input and analyzed your past performance, you should be ready to draft a new strategy. It’s crucial to plan your strategy proactively, identify your main goals and target assets, and design a plan for buying and selling those assets.
Document this so you’re more likely to stay consistent with it … and less likely to make impulsive decisions that violate your strategy.
Rebalance Your Portfolio
Finally, take the necessary time to rebalance your portfolio. If you find your underperforming holdings just require more time to pick up speed, then leave your portfolio as it is. Otherwise, consider selling off some of your underperformers, investing in promising new candidates, and rotating in new types of assets to broaden the diversity of your portfolio.
Please note that “fixing” an underperforming portfolio isn’t simply a matter of taking a few actions and resting on your laurels. Rather, you’ll need to make a concentrated, ongoing effort to keep your portfolio healthy and performing adequately.
Check your progress on a monthly basis (or even more often), and consult with your initial strategy document to ensure whether you’re practicing everything you set out to do.