Decluttering Your Household? Don’t Forget Your Investment Portfolio

Have you taken part in the latest lifestyle trend, decluttering your home? This pop culture craze suggests paring down your belongings and simplifying your way to a better life. With an uncluttered home comes the promise of less stress and a clearer mind. These principles also apply to your financial house. Similar to a closet jammed with clutter, an investor’s portfolio can be filled with financial clutter. This can include retirement plans from old employers that have been neglected, a mishmash of managed and indexed mutual funds that have been recommended over the years, and hot stocks and impulse buys that were purchased a decade ago. All of these create an unwieldy mess that is not only hard to manage, but could actually be hampering investment returns.

Determine Investment Goals. Before streamlining investments, review or determine your investment goals so that any decisions made are aligned with the big picture. Consider savings objectives, time horizon, large expenditures, retirement plans, budgets and risk appetite.

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Consolidate accounts. Most individuals tend to accumulate many accounts held at various financial institutions. Tracking portfolio performance as a whole and maintaining an asset allocation becomes a daunting task; therefore some may not look at it at all.  It is easy to lose track of assets and complicate planning. It is best to consolidate accounts with the same purpose: some taxable, others tax-sheltered, 529s and so on. Look at institutions with lower fees and a wide array of investment options and consolidate with one provider.

Analyze current holdings. Determine the current asset allocation of the portfolio, and compare to the desired allocation. Look at the concentration in industry sectors, geographic representation, and company size. Mutual fund fact sheets will provide this type of detailed data on a fund’s holdings. Look for positions that have grown and now represent more risk than what is appropriate for the size of the portfolio. Balance exposure considering factors such as asset type, size of position, sector, geographic region and access to liquidity.

Eliminate Overlapping Investments. Many portfolios hold too many mutual funds with substantial duplications across holdings. On the surface a portfolio with 8-10 mutual funds of stock and bond funds may look simple. Those funds however can hold thousands of securities, leaving the investor with many of the same positions held in different funds. While one manager may be buying, another is selling. The investor is simply paying mutual fund fees to both fund managers yet has no clear investment strategy. Eliminating these redundancies is a crucial step to cleaning up a financial portfolio.  

Reduce holdings. Most portfolios can benefit by simply reducing the number of investment holdings to a manageable number that still achieves diversity. As a result of corporate actions investors may accumulate tiny spin off positions. Sell positions of insignificant amounts. Trim back assets that have grown to a disproportionate size. Take a closer look at holdings that are dragging down performance. Are they companies with strong fundamentals that are out of favor yet will likely recover? Keep or add to these holdings. Or, if a deteriorating story cut losses and move on.

Consolidate Investment Advice. It may seem appealing to get advice from multiple financial professionals to compare ideas and get a second opinion, but problems arise when they have different approaches to achieving the investor’s goals. When an individual splits investment accounts between multiple advisors, the task of aligning investment strategies and determining the asset allocation for the entire portfolio falls back on the investor. It is best to interview multiple financial professionals, get the second and third opinion, but then select the one that is the best fit.  Move forward and apply that advice to your portfolio as a whole.  

Tax consequences. When selling positions, use realized losses to offset capital gains and up to $3,000 of ordinary income annually.

The decluttering and simplification process will take some time, but both experienced and less experienced investors alike can benefit from a more streamlined and focused approach.

Note: Donna St.Amant, MBA, is a Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit.

For nearly 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. Click here to contact David DietzeJohn PetridesClaire TothDonna St.Amantand Elaine Phipps, or call 908-598-1717 to learn more about Point View Wealth Management, Inc. and how we can help you and your family meet your financial objectives. To sign up for our complementary commentaries and newsletters, e-mail us at firm@ptview.com.

CNBC has named Point View one of the Top 100 fee-only wealth managers in America.