By Xavier Brenner With 2014 winding down, it's time to give your portfolio (and financial adviser) a thorough performance review. It's been a volatile year with rising geopolitical risks in Ukraine and the Middle East, slowing growth in the Eurozone, China and Japan and a big downturn in energy prices. So how did your manager navigate these choppy waves? What portfolio cleanups need to be made? Here are some year-end tips to fortify your investments for 2015.
You can't know where you are going without knowing where you've been. So, if you really want to a nuanced view of how your money manager fared, check your portfolio's alpha. This is a statistical measure of an investment's risk-adjusted performance compared to a benchmark, such as the S&P 500. It's one of the best indications around of how well your financial adviser or portfolio manager performed against the overall market and what level of risk he or she is taking.
2) Play defense
Your portfolio comes up short? You might want to reconsider whether the investment lineup in is well-suited suited to current market conditions. The present bull market run will turn five in March of 2015 and it's already the fourth-longest rally since 1928. This doesn't necessarily mean ripping up the entire game plan and starting over. However, the end of the year is a good time to consider cutting loose losing positions for tax reasons and making mid-course strategic adjustments. When markets are volatile, money managers will often shore up their portfolio's defensive fortifications by increasing exposure to companies with steady earnings and an above average dividend payout ratio. On top of that, you may also want to reconsider your strategy for energy-sensitive holdings heading into 2015.