For many of us, that springtime or summer burst of energy also means a good 'spring' cleaning. But it isn't just your house that can get a bit grubby over the winter months. In fact, the start of warmer weather is a great time to give your portfolio the white glove treatment. Chances are there's at least one investment in there that's taking the shine out of your returns. So, while you're cleaning and decluttering your home, take the time to shake those stale assets out of your portfolio in favour of something fresher - and more profitable. Here's how...
Step 1: Review
The first step in tackling any big task is to survey the scene. That means rolling up your sleeves, digging out your account statements and getting your hands dirty reading through the details. Take a look at how your investments performed and how their performance compares to benchmark returns. Uncover the reasons why and scour your statements for any fees that might be cluttering up your profit margin. Once you've surveyed the scene and have a good idea of what you're dealing with, it's time to tackle any problem areas you discover. [More: Help your advisor help you: 8 tips to being a great client]
- Step 2: Reassess
Chances are your basement and garage are full of things you really meant to use but have since been left to collect dust (and serve as a reminder of what you've failed to accomplish). Oftentimes, portfolios suffer from the same problem, perhaps harbouring an old retirement account you no longer contribute to or mutual funds that haven't performed for decades. As such, now's the time to peer into your accounts and rout out those stale, old assets.
Whether you're invested in stocks, bonds, mutual funds or GICs, those choices were probably based on a strategy and goals at a specific point in time. Since then, has your situation changed? If so, it might be time to rethink your investing strategy as well. Consider your top financial goals (such as buying a house, maxing out your RRSP, etc.), lay out the steps you'll need to take to achieve them, and design your saving and investing plan around meeting those objectives. If you don't think you have the financial chops to do this yourself, find a financial advisor who can help. Or hire someone to do the real spring cleaning and invest your time in dusting off and polishing your own financial skills. [More: Fees: Your investment portfolio's silent killer — How to plug the profit leak]
- Step 3: Rebalance
If you're a savvy investor or have worked with an advisor, your portfolio will be based on a specific asset allocation that's designed to help you meet your financial goals, whether that means saving for retirement, generating income or saving up for a major expense. Over the course of the year, however, that carefully weighted allocation can get out of balance as markets change and those assets rise or fall in value. In this case, it's time to rebalance. Think of it as Feng Shui for your investments, where finding the right balance of elements is essential to good fortune.
Why is rebalancing important? The reason portfolios are structured in a balanced way is to maximize return while still protecting the investor from excessive risk. Even if one sparkling asset is making your portfolio shine, you shouldn't let it dominate; if it takes a nosedive the next year, it can take your portfolio with it. So if you have 75 percent of your portfolio in risk-free assets like GICs and the rest in stocks, rebalancing will involve moving your portfolio back toward that same mix, whether through selling some of one investment or buying more of another. Asset allocation keeps your portfolio tidy, organized and financially efficient. [More: Dip your toes in the market: DIY investing explained]
- Step 4: Reorganize
You don't have to go all Martha Stewart on your filing cabinet, but if there's one step you can take to improve your fiscal fitness, it's getting organized. Make and label separate files for pertinent financial documents and start keeping a spreadsheet of your investments, including what you purchased, when and for how much. Make a place for everything and resolve to organize your investments and related documents as they arise. Even if you skip cute labels and color coding (but really, why would you?), clearing the clutter and keeping your paperwork spick and span will make your job much easier the next time your portfolio needs a little shaking out.
Tidy up your place & your portfolio
There are few rites that are more satisfying than the annual spring clean. But along with battling those winter dust bunnies, it may be time to tidy up your portfolio as well. Then you can kick back and enjoy the start of summer knowing that both your home and your financial holdings are fit to face another year. [More: Need to save money? There's an app for that!]
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Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial or legal strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances, as well as fully aware of current laws and regulations.