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Spring: A time to clean up your investment portfolio

When most people think about spring cleaning, they probably picture getting their home in better shape. But there’s nothing that says the end of winter cannot also be a time to do some ‘spring cleaning’ of an investment portfolio. In fact, it’s a perfect excuse to sit down, review what you own and decide if any changes need to be made.

Why you should spring clean your portfolio

As with a home, an investment portfolio requires a certain degree of constant maintenance. Left alone for too long, a portfolio can stray from the goals of the investor. The flip-side to this, mind you, is that obsessively tweaking a portfolio has its own downsides. From a financial point of view, too many changes can result in onerous transaction fees, eating into your overall returns.

What to focus on: A spring cleaning checklist

There are some basic questions you’ll want to answer as you go about giving your portfolio a decent spring cleaning:

  • What do I own? This is especially pertinent if you hold investments over multiple accounts. It’s important to get a handle on your total portfolio, and have a good breakdown of what percentage of your investments are in various asset classes (equities, fixed income, cash, etc.). Once you have a sense of what you own, you can do a basic risk assessment of your portfolio.
  • Am I comfortable with the risk I’m taking? As you review your portfolio, it’s a good idea to ask yourself if your risk tolerance is aligned with your holdings. This is especially true if you are close to retirement, in which the need for preservation of capital starts to become paramount. On the other hand, if you’re young, it may be the case that you are comfortable taking more risk. For example, if you’re 30 years old and have most of your money in bonds, you may want to consider owning more assets geared to capital growth, such as equities.
  • How Diversified am I? Diversification goes hand in hand with risk. Generally speaking, a portfolio that is well-diversified will have lower volatility than a concentrated one. In addition to owning different kinds of assets (equities and fixed income products, typically), it’s a good idea to be geographically diversified. In a nutshell, this means having exposure beyond your own borders.
  • Are the fees I’m paying reasonable? With professionally-managed portfolios, fees are a fact of life. But it’s still wise to check and make sure that the fees you’re paying are not out of line with similar offerings by other advisors or fund managers.
  • How are my investments performing? When you do a spring-cleaning of your portfolio, it’s a time to assess the performance of your investments. This assessment should look at both any funds that are self-managed, as well as those managed externally. If key parts of your portfolio are underperforming, it may be time for a change.
  • Can I simplify my investments? As you look over what you own, it may become apparent that your portfolio is needlessly complex. For example, maybe you have money with multiple financial advisors. Or alternatively, you might own a number of mutual funds that each cover the same general strategy. If so, consolidating some investments is at least worth considering.

The benefits are not just financial

There are clearly financial benefits to spring cleaning your portfolio. You can assess the risk in your portfolio and make sure it’s properly aligned with your risk tolerance. You can make sure you’re properly diversified. And you can ensure the fees you’re paying are reasonable. Those considerations aside, doing an annual spring cleaning of your investments has an added advantage: it will give you the peace of mind that your portfolio is on the right track. It’s tough to overstate the value of that.

Disclaimer: Foresters Financial does not provide investment, tax or legal advice. This material has been prepared for informational purposes only. Please consult with your financial and legal advisors before engaging in any transaction.

416102 CAN/US/UK (03/18)

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Andrew Hepburn is a freelance writer based in Toronto who specializes in financial issues. He's written for Maclean's, Canadian Business, MoneySense, Morningstar and T.E. Wealth, among others.