Portfolio Monitoring: Keeping Up With Changes in Investor Circumstances

Portfolio monitoring includes keeping up with changes in the investor’s circumstances. One reason for meeting periodically with clients is to allow the managers to update the investor’s profile. If there have been significant changes in circumstances, such as marriage, divorce, childbirth, or a home purchase, the change may require rewriting the investment policy statement and taking action to bring the portfolio into line with the new guidelines.

Periodic reviews should cover, in addition to the investor’s circumstances, changes in:

  •  wealth
  • liquidity requirements
  • time horizon
  • legal and regulatory factors
  • unique considerations

Changes in curcumstances and wealth can affect income, expenditures, risk exposures and risk tolerance. All of these factors can affect the future value of the portfolio.

While large changes in wealth may affect return requirements, risk tolerance and even time horizons, it is important to keep track of them. However, if they result from transitory factors such as market movements they should not require significant changes to asset allocation or investment strategy.

Liquidity needs can change due to loss of employment, illness, etc. The need to make major or frequent withdrawals limits the ability to invest in illiquid securities and may require higher allocations to securities that are either more liquid or face less price risk.

Time horizons can shorten by the passage of time or shift abruptly due to unforeseen events. Such events may require changing investment strategy to meet the new time horizon(s).

An investor’s tax situation can also change due to changes in income or tax laws. In such situations, appropriate responses may include accelerating or deferring the recognition of income, gains or losses; using strategies such as gifting appreciated assets; or changing allocations to tax-advantaged securities.

For more information, see all articles on: Active Management

See also:
  • Portfolio Monitoring and Rebalancing
  • Portfolio Monitoring
  • Portfolio Monitoring: Security Characteristics
  • The Portfolio Management Process
  • Portfolio Rebalancing: Cost/Benefit Analysis
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

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