Investors face the time of reckoning

How many bonds should you have in your portfolio - and which ones? And what about equities? Is the diversification of risk in the portfolio still intact?

The first quarter financial reporting season is just about to be initiated, and this may give rise to fluctuation in the stock markets depending on whether the companies are up to the marks thus justifying recent months' price increases. Hence, it is a good idea to review your portfolio and check whether you still have the expected risk diversification in your portfolio and whether the proportion of equities and bonds are in line with your preferences. According to chief analyst Bo Bejstrup Christensen from Danske Invest, portfolio management matters. He highlights four reasons why a service check of your investments makes good sense right now.

You must be well-prepared for the coming publications of financial reports
The publication of financial reports is the companies' annual exam, and therefore it is important that you as investor is well-prepared.

"Some companies may disappoint, others may surprise positively, and this will of course affect stock prices. Therefore, it is important that you as investor do not have a too large exposure to individual sectors or too large overweight positions in individual companies. Risk diversification is key", says Bo Bejstrup Christensen from Danske Invest.

Price increases will change your portfolio allocation
If for two years ago e.g. your portfolio had a 10% allocation to small cap stocks, the positive stock market development may have increased the value of this type of stocks to an extent where they today account for a larger proportion of your overall portfolio than previously. Thus, we recommend that investors monitor their actual portfolio allocation on an ongoing basis, explains Bo Bejstrup Christensen.

"Your investment adviser can help you define your investment profile based on your risk tolerance and investment horizon. In addition, your investment portfolio is - of course- to reflect your profile. Thus, from time to time, it is a good idea to follow up on whether your portfolio is balanced relative to your investment profile," says Bo Bejstrup Christensen.

Low interest rates are putting a damper on bond yields
A well-balanced portfolio comprises both equities and bonds. However, low interest rates and increasing growth in the global economy may render it difficult to generate high yields on certain bond investments.

"It is important that you hold the right bonds in your portfolio, and the historical low interest rates is a good occasion to review your bond portfolio. The returns on e.g. Danish government bonds and corporate bonds vary significantly," says Bo Bejstrup Christensen.

Remember always - you must take a long-term perspective on your investments
Even though it is important to monitor your portfolio on an ongoing basis, you should not allow momentary small or large fluctuations in the investment markets to dictate your investor behaviour. Stick to your investment profile is the message from Bo Bejstrup Christensen.

"If you sell your securities at the time when the markets have already fallen, and if you buy securities at the time when they are already on the rise, you will miss potential investment gains. Basically, once you have defined your investment profile, you should stick to it - also in times of recession," says Bo Bejstrup Christensen.