7 Tips for Decluttering Your Portfolio

by Miranda Marquit on December 17, 2012

Every now and again, it’s a good idea for even the staunchest of buy and hold investors to declutter the portfolio. Over time, your portfolio is likely to drift about, accumulating investments that don’t match your goals, even as the compositions of the funds you own shift as different components are bought and sold.

Now is a good time to take a look at your portfolio, and declutter it a bit. Here are some tips that can help you:

1. Remind Yourself of Your Goals

First of all, remind yourself of your investing goals. Why do you have this portfolio in the first place? Is it meant to provide you with regular income? Does it represent your retirement nest egg? Remember your overriding goals for the portfolio. Your decluttering efforts should be focused on making sure your portfolio is accomplishing its purpose.

2. List Out What You Have

Next, make a list of what you have in your portfolio. Don’t just list items, though. Make sure you organize them. Organize them by asset class, sector, and other factors. You want to be able to see what your asset allocation looks like, as well as whether or not you have diversity in across other areas, like industry and geography. For funds, make sure you include their make up, since you want to make sure that your fund investments are sufficiently diversified.

3. Don’t Forget about Fees

While you’re making your list, don’t forget about fees. Identify the costs associated with your investments. Chances are that you can replace high cost funds with funds that will accomplish similar things at a lower cost. You can also consider your brokerage transaction fees and consider moving your accounts to a less expensive company.

4. Consider the Fundamentals

Look at the fundamentals of your investments. Has something changed? You can look at P/E ratios, management changes in the last year, as well as balance sheets. Even if they are down right now due to market turmoil, investments with strong fundamentals are likely to recover. Investments with deteriorating fundamentals, on the other hand, are less likely to do well over time, and you might be wise to cut your losses and move on.

5. Get Rid of Investments No Longer Fit

Now that you have laid the groundwork for figuring out which investments are worth keeping, and you know your criteria for your portfolio, it’s time to get rid of investments that no longer fit. Do you have multiple funds that feature the same investments? It’s time to get rid of that duplication. Has your asset allocation gone of track? You need to send some of your losers and rebalance your portfolio so that your asset allocation is what needs to be.

Get rid of the investments that no longer fit the goals of your portfolio, and that are dragging your performance down.

Related: Your Best Bets for Investment Returns

6. Consider Reducing the Number of Investments in Your Portfolio

Another way to declutter your portfolio is to consider reducing the number of investments you have altogether. It’s possible to get exposure to a number of different asset classes, as well as diversify across sector, industry, and geography with the help of funds, particularly ETFs.

If you think that you have too many investments in your portfolio, you can use low-cost funds to consolidate so that your portfolio is less busy. These funds can allow you to achieve your desired asset allocation without the fuss of trying to fill your portfolio with a lot of individual stocks and bonds, and other assets.

7. Don’t Forget Taxes

As you declutter your portfolio, don’t forget about taxes. When you sell, you might have taxes to pay, either on long term capital gains, or short term gains, or on dividends. Make sure you are ready for that. Also, remember that your investment losses can offset some of your income. It’s possible to harvest your losses for tax purposes to reduce your tax liability. Keep that in mind as well as your declutter your portfolio.

While you don’t want to be constantly changing things up in your portfolio, you should still, at least once or twice a year, go through and declutter investments. Make sure you are on track, and get rid of investments that aren’t helping you reach your goals.

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This post was written by...

– who has written 12 posts on Excess Return.

Miranda is a freelance contributor to several investing and personal finance web sites. She also writes for her own blog, Planting Money Seeds.

{ 3 comments… read them below or add one }

Roger @ The Chicago Financial Planner December 17, 2012 at 7:46 pm

Outstanding post, these are the first steps that I take with any new client.

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