“If it ain’t broke don’t fix it” is one of my favorite proverbs.

However, with all due respect to the great Bert Lance who coined the phrase, I’d like to make a modification that especially rings true in the investment world. Do we determine whether something is broke or it ain’t based on a cursory observation or are we going to perform a more detailed analysis to come to this conclusion?

How about “If you’re sure it ain’t broke don’t fix it” or perhaps “If it ain’t broke after a detailed mechanical analysis don’t fix it.”

All I’m saying is let’s not be lazy. Determining whether something is working or not is serious business.

It is quite common that I see this proverb misapplied with investment portfolios. A portfolio is often deemed to be in good shape if its near-term performance has been very strong. Based on this, it is often determined that no action is necessary. Why any changes if it ain’t broke? However, there is no context here. In the late 90’s a portfolio of mostly technology stocks was determined to be solid and quite desirable. What was wrong with holding mostly bank stocks and real estate in 2006-2007? Things were rocking along quite nicely.

In a strong market, a rising tide can lift many ships. What happens in a weak market though? I’ve found over time that markets go up the escalator and down the elevator. Increases occur over time, but declines tend to be abrupt. There is often no time to reconfigure a portfolio that is too aggressive if markets head south.

Has your portfolio ever been stress tested to see how it would perform in a bad economy or a bad stock market? Do you have individual positions that make up a large portion of your portfolio? What happens if something goes bad with these positions? Are you sure that you can exit each of them at will?

The good news is that with a little homework and research, you can get a good feel for the risk of your portfolio and determine whether this level of risk matches your comfort level and investment horizon. This is the true determining factor of whether your portfolio is broke or it ain’t.

Don’t let inertia get the best of you; your retirement savings are a big deal.

Even if your investments are performing well in the short-term, they deserve more than a cursory glance.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

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