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Spring Clean Your Investment Portfolio

The arrival of spring encourages many of us to clean our homes, freshen up décor, and renew our fitness regimens. It can also be a good time to update your financial plan and take inventory of your accumulated assets. To that end, here are five tips to consider that can help you put some bloom back into your investment portfolio.

  • Take a hard look at your underperformers. There is an expression on Wall Street that says “don’t fall in love with your stock.” But to be sure, it is human nature not to want to admit we were wrong. As a result, we often hold onto our underperforming stocks in the hopes that they will turn around and prove us right. This often applies to stocks that are up since they were purchased but are clearly underperforming our expectation and the overall market. Continuing to hold these positions can be part of a strategy of hope and not rooted in anything scientific or academic. Spring gives us a chance to cut off our portfolio’s dead branches and plant that money into something that has a better chance of blossoming.
  • Prune your winners. The stock market run-up has been led by some high-flying, aggressive growth stocks. If you own a bunch of them, and they fall out of favor, that can also deliver outsized losses. If you might have some difficulty managing the emotions around a sharp decline, then now could be a smart time to take some profits. You don’t have to exit the position entirely, just trim a portion to reduce the allocation.
  • Put idle cash to work. I have found that investing near a market top is as difficult as investing at a market bottom. And if you’re one of the many people who want to be smarter than the market, you may decide not to invest at these lofty market levels. While you may end up being right for a short period of time, history has proven that market timing is incredibly difficult and that a regular program of scheduled investments can take the guesswork out of when to invest. Therefore, if your cash levels are a bit high and those funds are not needed in the near term, you might want to consider what is known as “dollar cost averaging”. This is when you automatically invest on a regular basis regardless of market levels.
  • Harvest tax losses. Investors usually consider tax-loss selling in the fourth quarter when tax preparation begins to take center stage. But sometimes selling ahead of the crowd can have its advantages. If you hold a stock that is trading at multi-year lows, there is a chance that others are also fatiguing. So beat the fall rush and consider selling now.
  • Plant something new. Many investors have a tendency or a bias. For example, some investors have a bias towards stocks that pay a healthy dividend, while others may have a growth bias and prefer rapidly growing companies. For the past several years, growth stocks have outperformed value stocks. But history has shown that both styles of investing can work so it might make sense to take a closer look at the “style weighting” in your portfolio. Just because a specific style is out of vogue now, it is very unlikely to stay that way forever.

Reviewing your investment portfolio and keeping your dollars working as hard as they can makes logical sense to just about everyone. But with the demands of our work-lives and personal interests, finding the time to keep things in sync with our current best thinking isn’t always easy. It’s also hard for investors to see their blind spots. Use this checklist to help you do some spring cleanup and hopefully, you will be able to enjoy the results later this year.


Mark Avallone Contributor

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