Ah. It’s that time of year where we get to sort through our piles of (unattended, unloved) junk, just as the weather starts to move from freezing to slightly-less-cold, but with blossoms! I already feel that spring spring in my step. And, while we’ve all adopted spring cleaning in some form other, I bet you don’t clean your portfolio in the springtime. Well, if you do, let me know! See, our portfolio is a home, too, of sorts. It’s home to something special: your money (your future). And just as dust gathers on your bookshelf and photo frames, it gathers on your assets, too. In a virtual kind of way.
Spring cleaning helps you de-clutter, figure out what you no longer need and what additional things you could do with. And when it comes to our portfolio, over time, we might have forgotten what we actually own or we might find that we have too much of a certain something but too little of another. Whichever way you look at it, it’s important to have a clean-up so that you’re sticking to your strategy and not missing out on opportunities.
Data from Fidelity found that ~40% of investors aged 60-69 hold 67% of their portfolio in stocks and 17% of those aged between 65-74 have 98% (or more!). This totally goes against our investment belief that the older you get, the less exposure you have to equities and the more bonds you take on. More and more older people are starting to end up with portfolios that have way more equity exposure than they actually knew they had. Since equities have practically been on an epic bull run since 2011, many of them have totally swelled in value. (Cough, cough US tech). Though read here why everything’s changing. So, it’s no surprise then, that many soon-to-be-retirees would have a lot more of their nest egg in the equity side of things than, say, bonds. As we get older, we take on less risk. This makes sense since the closer we get to retirement, the less time we have for markets to recover. Imagine retiring before a whopper market crash. Well sadly, this was the reality for many.
How Much Risk Do You Want?
An old friend of my parents told us how his dad had practically all his life’s savings stashed in the stock market and was planning to retire soon. Then came ’08. So having a look at how big your equity slice of your pie has become can help you get things back in order. To a ratio you’re comfortable with and to a ratio that makes sense for the stage of life you’re at! Naturally, since I’m a twentysomething, I have zero exposure to bonds (just my preference) and 100% in equities. But someone twice my age will most likely have more in bonds and (a lot) less equities than I have. But we all have different risk profiles so figure out what sized slices make sense, for you. What fits your lifestyle, your future needs and so on.
Though since interest rates have been rock-bottom for over a decade, this means that the yields on bonds have been declining. Hence bonds no longer offer than great hedge for times when equities were in the doldrums (like they are now). So the long-considered 60/40 portfolio (60% in equities and 40% in bonds) no longer held. This made investing a whole lot tricker and forced people more into equity land when in reality, they’d have been far happier with bonds. Meet Tina: There Is No Alternative. But still, checking-in on your portfolio (at least) once a year can help you sort this out and re-allocate some of your riskier capital to safer areas. Don’t underestimate what some tweaks can do!
Time To Take Some Profit?
Portfolio spring cleaning can also help you see which stocks have risen exponentially. And maybe indicate a good time for some profit-taking. Just like it’s only a loss when you sell, it’s only a profit when you sell! Otherwise, they’re paper profits. But you really can’t time markets. So don’t profit-take when you think it’s hit its peak but rather when you feel like it’s right. It could be that you have other investments you’d like to make and skimming some of the cream from profit-producers can help you take advantage of other opportunities, perhaps ones that have fallen in value recently. I personally like to keep a watchlist of stocks/funds on my stocks app and when I’m having a portfolio clean-up I like to see which ones represent good buying opportunities and which stocks I can sell to buy new ones. Of course, there are some things I’ll be holding onto for forever (or almost forever) but there are some that I’d like to sell and let something better take its place.
There’s the saying that you should cut your losses and ride your winners and some spring cleaning can help you do just that. If you’re seeing things that just aren’t worth holding onto, don’t be afraid to sell. We tend to put way more effort into the buying side of things but the selling is just as important. Unless you have a stash of cash on the side (read here why the top 1% do just that) when you want to buy something new, you most likely have to sell something old! But we tend to sell our winners. And rarely touch our losers. But cutting your losses (leaving your winners alone, with the occasional profit-taking) can seriously help things.
So when you’re cleaning up and find some dirty old thing, don’t be afraid to grab it and bin it. And replace it with a newer one instead. After all, winners win for a reason and if your stock is winning, enjoy it. That’s what you came here for. But don’t hang onto your losers for too long cause that’s an opportunity cost right there. Capital that isn’t working is wasted. So think twice before you decide what to sell to fund your new spring purchase.
By making a conscious effort to clean-up your portfolio can help you see if any of your holdings have fallen pretty badly in value and whether they warrant a top-up (‘buying the dip’). This could allow you to snap up bargains. But be careful: just because something’s cheap doesn’t mean it’s worth buying. They must be cheap for a reason. So figure out why they’re cheap, whether they can/will get cheaper or whether it’s up from here on out! Otherwise, you could find yourself getting caught in a nasty value trap. Been there, done that. No fun.
A tidy, clean(ed up) portfolio can work wonders. You’ll suddenly feel in control, know where your money is (and isn’t) and it can give you a signal to snap up quality stuff on the cheap.
Clean portfolio, clean mind. Something like that!
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.