Audit Your Investment Accounts Annually: A Guide to Keeping Your Finances in Check

“A penny saved is a penny earned,” goes the old saying. But in the complex world of investing, saving is just the beginning. To truly maximize the fruits of your financial labor and ensure your money works as hard as you do, an annual audit of your investment accounts is a must-do. The process allows you to adjust your sails in the face of shifting financial winds and to make sure that your investment strategy aligns with your evolving life goals.

Why An Annual Audit Is Essential

Investing can feel like setting a ship to sail. You chart a course, push off the dock, and hope for favorable winds. But just as wise sailors must constantly read the sky and adjust their course, wise investors must regularly review their portfolio. An annual audit helps identify what’s working well and what needs tweaking, or even a complete overhaul. It’s about taking control, being proactive, and not leaving your financial future to chance.

Step 1: Gather Your Financial Statements

Your investment journey audit kicks off by rounding up all your financial statements. This includes bank accounts, brokerage accounts, retirement accounts, and any other places where your money is growing—or supposed to be growing. Just like gathering all the pieces of a puzzle, having everything in front of you provides a clear picture of your financial landscape. It’s an opportunity to answer key questions: How much have you invested? How are those investments performing? Are you on track to meet your goals?

Step 2: Review Your Asset Allocation

Assets are like ingredients in a recipe. Just as the right mix can make a meal delicious, the right mix of assets can help your investments thrive. But tastes change, and sometimes recipes need an update. Similarly, your ideal asset allocation may shift due to changes in your life circumstances, risk tolerance, and the time horizon for your investment goals. During your audit, evaluate if your current mix of stocks, bonds, and other investments still makes sense. It’s about finding that sweet spot—the combination that feels just right for you now.

Step 3: Assess Performance Against Benchmarks

Think of benchmarks as signposts on your investment road trip. They show you if you’re driving in the right direction and at the right speed. Benchmarks could be market indices, like the S&P 500 for stocks or a bond index for your fixed-income assets. By comparing your investments to these benchmarks, you can understand if they’re performing as expected or if any are lagging. Remember, though, investing is a marathon, not a sprint. Short-term underperformance isn’t necessarily a reason to sell, but it’s worth understanding why it’s happening.

Step 4: Check for Overlap in Your Investments

Variety is not only the spice of life but also a cornerstone of a healthy investment portfolio. Holding different kinds of investments helps spread risk. But sometimes, in our zeal to diversify, we end up with overlap—owning multiple investments that do similar things. This might inadvertently increase your risk or make your portfolio less efficient. During your audit, snip out any redundant investments to streamline your portfolio and keep it running smoothly.

Step 5: Evaluate Costs and Fees

Costs and fees may seem small, but like sand in a gearbox, they can grind away at your investment returns. As you audit your accounts, look closely at what you’re paying in management fees, transaction costs, and fund expense ratios. Lowering these costs, perhaps by switching to more cost-effective investments, can help you keep more of what you earn. After all, it’s not just about what you make; it’s about what you keep.

Step 6: Check Your Beneficiaries

Life changes. And as it does, so should the details of who will inherit your investment accounts if something happens to you. Your annual audit is an excellent time to confirm that all your accounts have the correct beneficiaries and that these designations still reflect your current wishes. It’s a simple task, but one that’s hugely important for the sake of your loved ones.

Step 7: Rebalance Your Portfolio as Necessary

Over time, some of your investments may grow faster than others, causing your portfolio to drift from its target asset allocation. This drift could expose you to more risk, or less potential growth, than you intended. That’s why rebalancing—selling a bit of what’s grown and buying a bit of what hasn’t—is a critical step in your audit. Rebalancing helps keep your portfolio aligned with your desired asset allocation and risk level.

Step 8: Reflect on Your Financial Goals

An annual audit is a reflective process. It prompts you to consider whether your financial goals have changed. Maybe you’re saving for a new home, planning for a baby, or inching closer to retirement. Each of these life events could mean a different investment approach is necessary. Adjust your strategy to keep it in sync with your dreams.

Step 9: Make a Plan for the Coming Year

After the audit is done, it’s time to look ahead. Based on what you’ve learned, outline the steps you’ll take in the coming months. Perhaps you’ll contribute more to your retirement account, move around some assets, or learn more about investing strategies that pique your interest. Armed with a fresh plan, you’re ready to steer your investment ship into another year of potential growth and success.

Final Thoughts

An annual investment account audit isn’t just about ticking boxes. It’s a powerful ritual to connect with your finances, assess your progress, and rejuvenate your strategy. The time you invest in this process each year can pay off in greater peace of mind and the thrill of watching your investments blossom. Your future self will thank you for the diligence and care you’ve taken in guiding your financial journey toward the destination of your dreams.

Stay curious, stay informed, and never shy away from taking the reins of your financial health. An annual audit is a compass that helps you navigate through the ever-changing seas of investing. Set sail with confidence, knowing you’ve done the work to ensure your financial voyage stays on course.