There comes a time when you have to let unneeded things go. Maybe you donate clothing your children outgrow, or recycle your old computer, cell phone or MP3 player. Your investment portfolio may also contain items you no longer need. Here are examples of when it might make sense to let go of a retirement plan investment.
Your Portfolio Is Unbalanced
Investments often grow at different rates. If one asset type outperforms others, it may now comprise a larger percentage of your portfolio than you originally intended. Consider switching out some investments to rebalance your portfolio. You can also direct new plan contributions into the underrepresented asset type until your portfolio is back in balance.
An Investment Performs Poorly
Short-term declines in an investment’s performance may not be cause for concern. But, if an investment performs poorly for an extended period, there may be a problem. Take a close look at the investment and compare its performance to its benchmark index. If an investment consistently underperforms its benchmark, you may want to let go of it.
You Are Nearing Retirement
As you approach retirement, look closely at your exposure to investment risk. If your retirement account is heavily weighted in stocks, your risk exposure may no longer be appropriate. Before your retire, consider shifting more assets into less volatile investments, such as fixed income and cash alternative securities. You may consider keeping some money in stocks, however, so your investments have the potential to outpace inflation.
Consider keeping an investment if:
- It fits your investment strategy and asset allocation1
- Its risk level matches your goals and time frame
- Its performance is in line with its benchmark index
Consult with a financial advisor before making changes to your investment portfolio and retirement plan. Contact a Fifth Third Bank financial advisor today to review your investment strategy.