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If you remember your high-school science classes, you may recall Newton's first law of motion, which says, in essence, that an object at rest will stay at rest unless a net force acs on it. This principle is also called the law of inertia. But you don't have to be a scientist to be acquainted with this phenomenon - in fact, if you're an investor who hasn't done anything to your investment portfolio for a long time, you may be experiencing inertia first hand - and that could be a problem.

Why is it potentially dangerous to ignore your investments? After all, if you did a good job picking them in the first place, can't you just leave them alone and let them prosper?

This argument certainly has some validity. In fact, employing a "buy-and-hold" strategy is an effective way of achieving your long-term goals - if you've built a diversified portfolio of high-quality investments. However, "buy-and-hold" does not mean "buy-and-ignore." At a minimum, you should review your holdings once a year. Why? Consider the following:

  • Your situation may change- Your life can change greatly in a short period of time. You could switch jobs, marry or divorce, add a new member to your family, send a child of to college - the list goes on and on. And, as your life changes, so will your short- and long-term financial goals. Consequently, you really need to review your investments and your strategies carefully, on a regular basis, to make sure you are still on track toward meeting your objectives.
  • Your investments may change - Your investments, like your life, won't remain static. For example, you might have bought a stock five years ago because its management was strong, its products were competitive and its industry was thriving. Now, five years later, the situation may be different in any or all of these areas. In fact, if you were to take a close look at this stock today, you might decide that it no longer fits your needs. And that's why it's important that you do take a close look at this stock - and all the other investments you own. If they are no longer suitable for you, you would be better off selling them and using the proceeds to purchase other investments.
  • Outside factors may change - Interest rates, inflation, corporate earnings, political turmoil and other factors regularly affect the investment climate. By and large, however, you probably don't want to continually revise your investment strategy in response to the "news of the day." But some events are far more significant than others, from an investor's point of view. Consider tax law changes of just a few years ago, which resulted in lower tax rates on stock dividends and capital gains. If you haven't thoroughly reviewed your portfolio since these changes, you could easily be missing out on opportunities to make moves that can benefit you in the long run.

Don't grow complacent
Even if you are generally satisfied with the performance of your investments, don't let "inertia" take over. Review your portfolio regularly and make changes as needed. By being a diligent investor, you can boost your prospects for ultimate success.



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