Portfolios 301: How to Monitor Your Portfolio, Part 1

Test your knowledge

Choose wisely. There is only one correct answer to each question.

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Review your answers below to learn more.

The best way to put an investment's performance into context is to compare its returns to those of other investments in your portfolio.

True

False

False. The best way to do it is to compare its returns to an appropriate benchmark.

What is the danger in letting the strongest performers of your portfolio stay in there and continue performing, as opposed to regular rebalancing?

There is no danger.

It increases the overall risk level, which can magnify losses during a downturn.

It's usually the wrong investments that perform so well.

None of the above

It increases the overall risk level, which can magnify losses during a downturn. And that means you might not meet the goals for which you are investing in the first place.

If a mutual fund no longer meets one of your investment criteria, should you sell it?

Yes

Maybe, maybe not

Maybe, maybe not. It becomes a more important issue once it no longer meets most of your criteria.

What should you expect from your mutual funds as you're monitoring them?

That they're still meeting your investment criteria

That they're outperforming all other funds

That they're outperforming their benchmarks over every possible time period, no matter how short

That they're still meeting your investment criteria. You want your funds to meet the same investment criteria today as they did when you first bought them. If they no longer meet your criteria, do they still belong in your portfolio?

If you've created an investment policy statement, you will have addressed which of these portfolio-monitoring issues?

Your target allocation for each asset class

How often to rebalance

How often to monitor

All of the above

All of the above. If you've created an investment policy statement, you will have addressed these questions and many others.