Follow Three Steps to Financial Health

If the first three months of this year have reminded investors of one thing, it's this old adage: "The only thing constant is change."

A big rally was followed by a selloff that spooked many investors, especially less-experienced ones who have never watched the market plummet literally over the course of minutes. Although the recent swoon, in percentage terms, was relatively minor, its shock value was powerful.

Significant market moves -- in either direction -- often prompt people to evaluate their investments: what they own, what they don't own and even what they should own.

While such a reaction is healthy, periodic portfolio reviews should be a regular part of your investment process. Just like a routine doctor's appointment, a portfolio physical will increase your odds of avoiding the emergency room. The good news is that the portfolio review process isn't brain surgery.

Very simply, there are three basic tenets of portfolio-building and management:

• Know yourself.
• Know your portfolio.
• Know your investments.

Let's take a look at each.

The Personal Review

While knowing yourself may seem like the simplest step of portfolio development, it is also the most important. Your goals and objectives and your personal style and demeanor will set the tone for your portfolio.

Think back to the first time you filled out a brokerage application. You most likely completely a rudimentary set of questions about your investment history, age, income and the like. It wasn't a very compelling profile, but it was a broker's attempt to get to know you a little better. Fortunately, if you run your own portfolio, you have a wealth of information about yourself that you can use to develop a much more complete profile.