Portfolio Management December 3, 2015

    When setting up a portfolio through an automated investment advisory service, you often complete a questionnaire that asks about your risk tolerance, time horizon and goals—like a rainy-day fund, saving for a major purchase, or retirement—and receive a recommended portfolio allocation. Does that mean you should sit tight the entire time your portfolio works its way toward your goal?

    That depends on various factors, including whether you have a short- or long-term goal. Here are three signs it may be time to review your profile:

    1. You are close to reaching your goal: When you invest in a target-date retirement fund, you expect its asset allocation to automatically adjust as you approach your retirement date—growing more conservative over time. However, an automated investment advisory service like Schwab Intelligent Portfolios™ won't change your target allocation as time passes. That means you may want to adjust your profile as you get closer to needing the money for your goal, particularly if you started out with a long time horizon. As a reminder, failing to review your risk profile and target allocation could affect whether you reach your goal.

    2. You have had a major life change: If you decide to retire earlier than planned, you may want to adjust your profile to take your shortened timeline into account. Marriage, particularly if your spouse has a different approach to risk, also can be a good reason to review your risk profile. Having a child may change your investment time horizon, as you begin to think about college tuition in 18 years. (In this case you might also consider establishing a separate portfolio, with a different time horizon, to meet this new savings goal.)

    Losing a job also may lower your tolerance for risk. However, ideally you should have a rainy-day fund to cover living expenses for at least three to six months; if you do, consider holding off on changing your long-term risk profile until you have had time to assess your job prospects and how long you're likely to be unemployed.

    3. There has been a significant change to your net worth or income: Receiving a windfall—a bonus, inheritance, or large profit from selling a business—can change your primary financial goal from acquiring wealth to preserving it. On the other hand, earning more money means having more capital, and thus a bigger cushion to help you manage market volatility. Consider revisiting your risk profile if your financial situation changes significantly.

    In reviewing reasons to change your risk profile, it's important to mention one thing:

    Don't base your decision solely on a market event. Choppy markets lead many investors to question their risk tolerance—it's natural to wish your portfolio were more conservative when stocks are performing poorly, or less conservative when the market is strong. But historically, market timing has been a very unreliable strategy. Selling an investment after you've incurred a loss locks in the loss. While there can be some benefits, such as opportunities for tax-loss harvesting, selling an otherwise attractive investment on a dip means you won't benefit from any future rebound.

    One of the advantages of using an automated investment advisory service is that it helps take the emotion out of investing. Assessing your risk tolerance by filling out the questionnaire during a moment when you are facing neither a strongly up nor down market as part of this process, allows for honest, dispassionate answers. However, long-term investors may face scenarios where the risk level indicated in the questionnaire—perhaps filled out some time ago—should be reviewed.

    Need to change your risk profile? It's easy with Schwab Intelligent Portfolios. Simply log into your account and click "update profile"to re-launch the questionnaire and update your answers and risk profile.1

    1. Changing your answers may result in a new investment portfolio, which could incur capital gains or losses. In addition, changing your risk profile two or more times (including changing your original risk profile) within a period of 3 trading days may create settlement violations and cause your account to become restricted. This means that your account may not be included in trading due to changes in your investment strategy, rebalancing or tax loss harvesting for a period of 90 days.

    Investing involves risk including loss of principal. The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

    (1015-95NY)


    Was this article helpful?

    Next Steps

    1. Open an account
    2. Log in
    3. Learn more about Schwab Intelligent Portfolios®
    4. Tips for smart investing

    5. Contact a Schwab investment professional to discuss your goals:

    6. Live chat now
    7. Call us at 855-694-5208