Your funds should work as hard as you do. \r\n\r\nAt the end of each quarter, I like to evaluate the performance of each of my funds to know about my retirement accounts\r\n\r\nI don\u2019t necessarily make an immediate change but I will record my thoughts and persistent trends will result in action.\r\n\r\nHere is how I approach my review:\r\nStep 1: Performance Check\r\nGroup Of Business People Talking\r\n\r\nI will start by evaluating the overall performance of my full portfolio. \r\n\r\nI have different asset class selections based on account type. As I covered in my Dividend Funds article, I like to carry conservative, income-producing assets in my retirement accounts. \r\n\r\nSo I do not want to be overly myopic if an individual fund class is out of favor when there is a greater purpose for that fund in my portfolio.\r\n\r\nThis is where comparisons to benchmarks comes into play. Morningstar \u00ae provides a nice overview of appropriate benchmarks by asset type/investment objective.\r\n\r\nI will align the funds to their benchmark and focus on those that are under-performing. The base question is whether that is a recent or persistent trend. \r\n\r\nIf just near-term under-performance I will quickly review the top holdings to understand the specific driver.\r\n\r\nOften if an asset has under-performed near term, and the manager has a contrarian bent, that fund may be due for a rebound. Certainly, historic performance will be my guide here.\r\n\r\nIn my last 3 quarterly reviews, I have only eliminated 2 funds, and have added 3. I am very careful in optimizing the number of different funds in my retirement accounts. \r\n\r\nEach time I add a fund, I need to ensure it makes the portfolio incrementally better (more diversified, better return/risk)\r\nStep 2: Fee Check\r\nFees Keyboard Button\r\n\r\nThis should be a primary consideration when buying a fund, so we should not be finding much here. \r\n\r\nSometimes funds will make distribution changes and that will affect the marketing fees (12b-1) or they will change management companies, which again can change the fee structure.\r\n\r\n401k is the area where I see the most movement. Companies will annually shop this business and may make an intention or unintentional decisions that drive up costs. \r\n\r\nThe employer may have a larger banking relationship with a company that offers 401k services and that may drive a change.\r\n\r\nMake sure you are evaluating the options available at the new company and setting both your current portfolio and future allocations in a way where you are achieving your diversification objectives along with minimizing fees. \r\n\r\nIf you are paying more than 1% of fees, it is time to dig in and check alternatives.\r\n\r\nThe same rule applies beyond the 401k, if you are paying more than 1% for the actively managed funds, start to shop. \r\n\r\nIf you are paying more than .25% for passively indexed funds evaluate your alternatives. \r\nStep 3: Diversification Check\r\n\r\nAs assets come in and out of favor, you will start to see the imbalance in your portfolio. \r\n\r\nThe below table shows equity performance by country. The takeaway here is that the top/bottom performers change every year without a pattern. Diversification is required.\r\nDiversification Check Chart\r\nDiversify Across Assets\r\n\r\nRay Dalio does a tremendous job explaining the benefits of carrying inversely correlated asset classes. \r\n\r\nIn fact, he refers to this as the holy grail of investing (quick video explanation if interested). \r\n\r\nDiversifying across countries is good but leaves equity risk. Having a fixed income allocation has historically been a nice off-set to equity risk. \r\n\r\nAdding precious metals (Gold, Silver) helps off-set the risk of Inflation that is the cryptonite of fixed income, and so on.\r\n\r\nIt is possible to create a portfolio that is optimally balance based on risk premium, which we will cover in detail in another article. \r\n\r\nHowever, this article is about managing the divergence from your desired allocation and managing your retirement accounts.\r\n\r\nI will recalculate my exposure to my asset calls, and anytime that I\u2019m more than 5% (gross) away from desired distribution, I will sell/buy to rebalance.\r\n\r\nDoing this once per quarter has been found to be a nice balance between minimizing transaction costs (cost to trade) and performance.\r\nBottom Line\r\n\r\nCheck performance (relative to benchmarks), check fees (with 1% rule in mind), and check allocations to keep yourself safe. \r\n\r\nHaving a set routine will allow you to get comfortable with the process, and having a set frequency will help you optimize your return to risk for your overall portfolio.