How To Spring Clean Your Portfolio

Every spring, calculating eyes turn to full closets, but those same eyes should be turning to investment portfolios.

"I regularly clean out my closet, especially at the start of a new season," says Alanna Morey, a private wealth advisor at Ameriprise Financial. She often finds outfits that no longer fit her or her style.

"The same thing can happen in our portfolios," she says. "If we aren't regularly reviewing and making changes to our portfolios, they may not be in alignment with our present goals or risk tolerance."

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Just as you might reevaluate your closet every spring, you should follow these steps to spring clean your portfolio.

Spring clean your portfolio: Review your style objective

The first step to spring cleaning your closet and your portfolio is to remind yourself of your vision for it and the items within it. What were you hoping to achieve with each of the investments you purchased? Are they doing what you hoped they would?

"If your goals have changed, it is likely that your investments need to be adjusted too," says Lisa Westermark, senior vice president and co-founder of Beverly Hills Private Wealth. "For example, if you decide that you want to retire sooner than planned, that will adjust the time horizon for your goal, which impacts the risk tolerance of your portfolio."

If you have ambitious long-term goals, you may need to lean heavily on riskier securities like equities. Meanwhile, if your goals are more modest or within the next five to 10 years, you should consider more conservative investments that won't overexpose you to the risk of loss when you need to withdraw your money. 

Spring clean your portfolio: Sell stretched-out items

Sometimes, despite your best efforts to follow the care instructions, clothes stretch out. Investments can stretch beyond their intended bounds, too. As great as it may feel to see overachievers in your portfolio, holding onto winners can lead to overconcentration, which can push the risk level of your portfolio higher than intended.

To spring clean your portfolio, you need to pare back your winners so you can reinvest in your less stretched-out investments. In other words: Sell enough of your outsized investments to bring them back in line with your intended allocation and use the proceeds to buy more of the underperforming investments to bring them back up to the size you intended them to be.

If taxes are a concern, you can gift stock that has appreciated in value to charity to avoid having to take the gain yourself.

Spring clean your portfolio: Reconsider the underachievers

Not all underachievers need to be kept, however. Sometimes outfits don't live up to expectations. They look great on the hanger, but when you get home, you find you never actually wear them and so they wilt and wither in the back of the closet.

The same can occur with your investments. Sometimes a security bought with the best of intentions never achieves what you were hoping it would.

"Maybe you have a pet stock that you have held for years, and it is only losing value," Westermark says. Sometimes this means the investment just needs more time to reach fruition, but other times it could be a sinking ship. 

"Don't fall victim to the loss aversion bias," where the pain of loss is so strong that investors refuse to accept defeat, Westermark says. "Consider if you could instead invest in something that better serves your overall goal."

Spring clean your portfolio: Check if you're achieving the look you're aiming for 

Once you've reviewed your investments on an individual level, you can take a view to see if you're doing everything you can to reach your goals.

"Can you increase the amount you are saving towards them?" Morey says. "Now is a great time to make sure you are saving as much as possible toward your 401(k), IRA or other accounts that can support your financial priorities."

Should you invest more aggressively in the hopes of a higher return? Or do you need to reduce your risk to help you sleep at night?

Spring clean your portfolio: Look beyond your closet

Spring cleaning your portfolio doesn't have to end with your investments. You can – and should – evaluate all aspects of your financial life. 

"Review your balances and put together a plan to clean out any debt you can, especially credit card debt," Morey says. Then, assess "your inflows and outflows to determine if you can set up a systematic savings plan to save towards your financial goals."

You should also take stock of where all your accounts are located.

"Many people think it helps to diversify if you have accounts with multiple institutions, when in reality the accounts can be working against each other or have too much overlap to actually be diversified," Westermark says. "You need to have one succinct plan and direction or run the risk of having competing plans."

If nothing else, consolidating accounts will make it easier to spring clean your portfolio next year.

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