From CEOs to athletes, most people striving for a certain level of performance are constantly assessing where they are and where they want to be. Regularly checking in helps them decide if they’re effectively using all their resources. Sure, it may seem OK to overshoot a goal, but if resources are used in the wrong way – too inefficient, too costly, not the right kind of risk – it may undermine the long-term prospects of achieving it. And you want to avoid undershooting a goal because it may cause more problems.
A gap analysis can give you a snapshot of your current situation and help you decide the adjustments you’d like to make to get back on track.
For a long-term strategy to have the most potential for success, it should be based on an assessment of your needs, priorities, preferences, and risk tolerance. Financial goals, like planning for lifetime income in retirement, should account for your actual needs, economic factors, and life’s uncertainties. When you put these factors together, you should end up with a target to aim for.
When you first create your investment strategy, it should be adjusted to your needs. But over time, things will change. For example, a change in the market may shift your allocation of assets out of balance, potentially causing a mismatch of risk and return orientation. A change in priorities may mean you’re assuming too much or too little risk, throwing you off target. While this can be addressed through regular portfolio rebalancing, a gap analysis is another way to see if your portfolio is still leading you toward your goals.
Portfolio gap analysis helps you determine if the resources you’re using to pursue your investment goals are being used effectively across your strategy. When performing your analysis, you may want to consider:
No matter if you’re working with a financial professional or attempting to manage your portfolio on your own, a thorough analysis should be a part of your long-term investment strategy. Through regular review, you’ll be better informed about where you are in relation to where you want to go. Give us a call if you’d like to review your portfolio, and let’s see if you’re heading in the right direction.