A 10-Point Checklist for Evaluating Your Portfolio

By Selena Maranjian Markets Fool.com

If you're a smart investor, then you'll be periodically evaluating your portfolio instead of simply letting it sit there and grow or shrink. Here are 10 important questions you might ask yourself as you review your portfolio -- having good answers to each of them will position you to get good results from your investing.

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  1. Are you carrying any high-interest rate debt? If you're saddled with hefty credit card debt, for example, you shouldn't be focused on a stock portfolio, but instead, be putting all available dollars toward paying off your debt. High-interest-rate debt is like reverse investing: You might earn 10% annually in stocks, but if you're carrying a balance that's being charged 25% annually, you're losing 25% annually.

  2. Is any short-term money in your stock portfolio? You should only be parking long-term money in the stock market, as it can swoon at any time and remain down or stalled for a bunch of years. Only invest money in stocks that you won't need for at least five, if not 10, years.

    Fees can really hurt your returns. Image source: Getty Images.



  3. Are you paying a lot in fees? Fees matter more than you think. With mutual funds, seek no-load funds, and low expense ratios (annual fees). In any kind of account, if you're paying 1% or 2% in management fees, you're losing $1,000 to $2,000 on an account worth $100,000. If you trade frequently and are paying $20 per trade instead of $7 or less that you can get from a variety of good brokerages, then you're losing $13 or more per trade. On 100 trades per year, that's $1,300.

  4. Are you trading frequently? By the way, for best results, don't trade frequently. Do your research and find the most promising investments you can, and then aim to stick with them for the long haul. Trading frequently racks up excessive commission costs, plus short-term gains are subject to much higher tax rates than are gains on assets held for more than a year. Remember that many great companies that you find will have occasional downturns, but over the long haul, they should reward you.

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  5. Are you diversified? Don't have too many eggs in one basket. A particularly dangerous move is having a portfolio made up largely of stock in your employer. Yes, you may be most familiar with the company you work for, but few companies are bulletproof. You already depend on it for your living expenses -- relying on it for your retirement, too, is risky. Aim to have stocks (or stock holdings in mutual funds) that span a variety of industries and even countries. You might be most bullish on a particular industry, but if you load up on companies in it and then it experiences a crisis, you'll be in trouble. Think of the credit crisis a few years ago that devastated many financial services companies.

  6. Can you explain each holding's business model? Don't just buy into companies that seem great from a brief write-up. For best results, dig deep into companies you're considering, and be sure that you understand exactly how they make their money. Is it from licensing their technology? From retail sales at brick-and-mortar locations? From taking a cut of electronic transactions? The better you understand a company's competitive position, strengths, weaknesses, and challenges, the better decisions you can make regarding whether to buy and when to sell.

  7. Are you keeping up with each holding? Don't just get to know a company when you buy it, either. You should be keeping up with your holdings regularly -- at least quarterly -- when they issue their earnings reports. Follow them in the news, too, perhaps by setting up automatic news alerts for each of them. You don't want to be taken by surprise if their business starts deteriorating.

  8. Are you enjoying long-term gains? You should be assessing your portfolio's performance regularly to be sure that it's growing and not shrinking. (Of course, shrinkage is to be expected if the overall market has swooned recently.) If your portfolio isn't growing over multi-year periods, you need to make a change in your strategy.

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  9. Are you beating your benchmarks? Not only should your portfolio be growing, but it should also be outperforming relevant benchmarks. For example, considering that you could easily invest in a very inexpensive S&P 500-based index fund, such as the SPDR S&P 500 ETF (NYSEMKT: SPY), which distributes your assets across 80% of the U.S. market, you should ideally be outperforming the S&P 500. If you're not, you'd do better just to invest in the index fund.

  10. Are you making decisions based on reason or emotions? Finally, consider how you're making your investment decisions. Are you buying various stocks or funds out of greed because they've recently surged? That's dangerous, as they may now be overvalued and due to drop. Are you selling holdings when they, or the entire market, take a fall? Fear can cause you to realize losses, or smaller gains, or to be out on the sidelines when powerful recoveries take place. Read and learn a lot about investing -- by reading the philosophies and strategies of outstanding investors -- so that you develop a sensible perspective and can make rational decisions. For example, you need to expect occasional market downturns and be prepared to ride them out, ideally buying more stock at low prices if you can.

Regularly asking yourself questions like the ones above -- and having good answers to them -- can make you a better investor, achieving greater returns in your portfolio.

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Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.