When to consider changing investment strategies – Wells Fargo (2024)

If your investments aren’t yielding the returns you hoped they would, you might be tempted to sell them and reinvest elsewhere. If things are going well, you may want to cash out and move on to the next investment. While changing strategies can be a good idea, it’s better to base those decisions on analysis and in the context of your long-term investment plan rather than on speculation or instinct. So, before you make an impulse move, ask yourself the following questions:

• Have my financial needs/circ*mstances changed? When your financial goals change, you may want to revisit your investment strategy. Likewise, you should re-evaluate your investment portfolio after significant life events, including when you’ve changed jobs, gotten a raise, had a child, or gotten married/divorced. Finally, consider your tax situation and the type of account in which the investment is stored. These factors and more impact the potential tax impact that changing investment strategies may have on your overall portfolio.
• Has my investment horizon or risk tolerance changed? If your financial timeline changes – as it does, for example, when you near retirement – If your financial timeline changes, as it can when nearing retirement, your investment strategy may need a tweak. Changes in how much risk you are prepared to accept could likewise trigger changes in your investments. In general, the shorter your investment horizon (i.e., the sooner you need the money) the less risky you want your investments to be. If your horizon is longer than 10 years, relatively higher-risk investments that offer the potential for higher returns, such as stocks, may be a consideration. If your time horizon is between two to 10 years, a mix of stocks and more conservative investments such as bonds may be best; and if it’s less than two years, you may want to consider some income-generating investments along with investments that tend to be lower risk. No matter what your timeframe, discuss with your Financial Advisor about what investment approach may be appropriate for your particular situation.

• Are my investments under performing? When you have a long investment horizon, a bad day, week, month, or even year may not be a cause for concern – though it’s often wise to talk to a financial advisor about the performance of your investment portfolio. To provide context about the performance of your investments, you may want to compare your investment portfolio to other relevant benchmarks for comparison. For example, if you have stock in a particular company, you might compare the stock's performance to other companies in the same industry.
• Are my investments outperforming? Apply a similar principle to investments that have performed extremely well. Talk to your Financial Advisor, determine why your investments are doing well, and decide what your next move should be.
  
• Have my funds changed? If you’re invested in a mutual fund, look for changes in the fund's manager, size, investment strategy and composition. Changes can be good, bad, or neutral. The key is making sure that the fund continues to offer exposure to the assets that it outlines in its prospectus and that holding it continues to make sense in relation to your overall investment portfolio and financial objectives.

The bottom line: Investments aren’t impulse purchases. Before you change strategies, consider the pros and cons alongside your present circ*mstances and future goals. When you do – and you still want to buy or sell – you’ll know you’ve made an informed decision. For more on this topic, see the Financial Industry Regulatory Authority's article "Evaluating Investment Performance."