Last year was a good year in the markets and a great year for many active portfolio managers. The results were a stark contrast to 2008. In the aftermath of the 2008 stock market massacre, many investors were too shocked to take action. Actively managed mutual funds had taken a beating - indexes didn't fare too well either - and investors didn't know what to do. (Learn which management style best fits your investment goals in The Lowdown On No-Load Mutual Funds.)

Last year's rebound has helped to reenergize investors, and the New Year brings new opportunities and a time to reassess your investments.

Time For a Change?
If your portfolio took a beating in 2008, the first question to ask yourself is "did it rebound in 2009?" If so, was the rebound close to or in excess of the benchmark? While your first reaction may be to expect returns that beat the benchmark, keep in mind that investing is a long-term endeavor, and strategies that outperform the benchmark over a period of ten years are based on averages that may include four years of underperformance and six years of outperformance or some other combination of results that come out ahead over time.

In an extreme example, a manager that trails the benchmark for nine years by 1% and then outperforms by 40% produces an average result that is ahead of the curve. The point here is that a single year does not usually provide enough information on which to base a long-term investment strategy.

If you were happy with 2009's performance results, it's time to look backwards and ask yourself whether or not you were happy with your investment strategy prior to the crash. If that mid-cap fund was appropriate for your portfolio in 2006, is it still appropriate today? If so, it's time to sit back and let the law of averages, dollar-cost averaging and the healing power of time go to work on your behalf.

Of course, even if your manager is doing a great job, the precipitous stock market decline that is still so fresh in our memories may have changed your strategy. Perhaps you need to take a more aggressive stance to make up lost ground. Or maybe you're gun-shy and have decided that you can live with lower returns in exchange for limiting your downside risk.

Either way, choosing the right strategy is likely to have a far greater impact on your portfolio than switching managers. (These key stats will reveal whether your advisor is a league leader or a benchwarmer. Find out more in Does Your Investment Manager Measure Up?)

Don't Change for the Sake of Change
With many portfolios still down from their peaks by double-digits, the urge to "do something" can be overwhelming. It can also be illogical. If the returns in your portfolio were reasonable and you are happy with fund and the strategy, there may be no reason to make a change.

If you decide to make a move, think first. Carefully consider not only where you want to move your money but why also why you want to move it. If you've got a good reason and a sound strategy, by all means make the move.

Related Articles
  1. Mutual Funds & ETFs

    Top 5 Natixis Funds for Retirement Diversification in 2016

    Discover five mutual funds from Natixis Funds that provide high income, growth and preservation of capital while diversifying a retirement savings plan.
  2. Mutual Funds & ETFs

    4 Mutual Funds You Wish You Could Include In Your 401(k)

    Discover four mutual funds everybody wishes were in their 401(k)s. Learn which five-star-rated no-load funds leave their competition in the dust.
  3. Mutual Funds & ETFs

    Top 3 Allianz Funds for Retirement Diversification in 2016

    Discover the top three Allianz funds for retirement diversification in 2016, with a summary of the portfolio's managers, performance and risk measures.
  4. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  5. Mutual Funds & ETFs

    3 Invesco Funds Rated 5 Stars by Morningstar

    Learn about the top three mutual funds administered and managed by Invesco Ltd. that have received a five-star overall rating from Morningstar.
  6. Mutual Funds & ETFs

    The Top 4 Russell Funds for Retirement Diversification in 2016

    Discover four mutual funds administered and managed by Russell Investments that would add diversification benefits to a retirement portfolio.
  7. Mutual Funds & ETFs

    The 3 Best American Funds for the Income Seeker in 2016

    Learn about American Funds' mutual fund offerings, their past performance compared to peers and three American funds to consider for income investors.
  8. Mutual Funds & ETFs

    5 Low Fee Lord Abbett Mutual Funds

    Learn about five low expense ratio Lord Abbett mutual funds and the key characteristics about each mutual fund's top holdings, returns and total assets.
  9. Products and Investments

    There's a Reason They're Called Junk Bonds

    The closing of Third Avenue Managemet's Focused Credit Fund is a warning to investors and advisors. Beware the junk.
  10. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
RELATED FAQS
  1. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  2. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center