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Give Your Portfolio a "Spring Cleaning"

Now that April is here, you may be stirring from your hibernation and feeling “done with winter” for another year. One of the easiest ways to put the season of long cold nights behind us – and prepare for the warmer, sunnier days to come – is through our annual spring cleaning efforts.

As you tackle the chore this time around, why not “tidy up” your investment portfolio, in addition to giving your house and yard the usual once-over? Here are a few ideas:

De-clutter — You may be surprised at the clutter in closets, storage areas and under beds you discover while spring cleaning. Upon closer look, your portfolio may also contain investment clutter, in terms of securities that no longer suit your goals. If you periodically “de-clutter” by selling those investments, you can use the proceeds to purchase more appropriate ones.

Consolidate — Going through the house, you may find scissors, rolls of tape, screwdrivers and other common tools scattered among various rooms. It might be more efficient to keep all such “housekeeping and maintenance assets” in one central location; because this can help prevent you from needlessly replacing or duplicating them.

Your financial assets may be in a similar state of affairs. You may have an IRA at one institution, an old 401(k) with a former employer, and some other investments with yet another brokerage firm. If you consolidate them with one provider, you might save on fees and expenses. You may also find it easier to look at all of your holdings and make holistic asset allocation and diversification decisions. It may be easier to monitor your progress, as well.

Re-arrange — As you de-clutter and consolidate your house, you may find certain rooms have become “outdated” and no longer fit your lifestyle. It is the same with your investment portfolio. When you re-evaluate your holdings, you may find that some no longer fit your investment personality. Specifically, they no longer meet your risk tolerance. This may result in two problems:

  • Too much stress — Over the long term, markets have trended upward. But over the short term, they may fluctuate, with downturns lasting weeks, months and even years. If you believe you can tolerate risk of losing money in your pursuit of wealth accumulation, but instead find yourself losing sleep over market slumps, then you may need to re-evaluate your risk tolerance. That may include rebalancing your portfolio to be less susceptible to volatility.
  • Too little growth — To achieve your long-term goals, such as a comfortable retirement, you need some growth potential in your portfolio. However, just as you can over-estimate your risk tolerance, it is possible to under-estimate it. When that happens, you may choose securities offering protection of principal but little opportunity for growth.

To help overcome your perceived low tolerance for risk, consider diversifying your holdings to include some growth vehicles, such as stocks and stock-based mutual funds, along with the more conservative investments in your account(s), such as bonds and CDs.

The good news is: the more time between now and when you need the money, the more time it has to grow – and make up for lost ground, when market values periodically decline. The other side of the coin, however, is the more time you have to be invested, the more time inflation has to eat away at its purchasing power. That is why growth oriented securities may play a key role in long-term success.

When you give your home a good spring cleaning, you can enjoy a sense of orderliness and the pleasant feeling that comes from knowing there is a place for everything – and everything is in its place. And you can achieve similar results by “refreshing” your investment portfolio.

Contact your RBC Wealth Management financial advisor today for assistance or use the advisor locator tool to find an advisor near you.

 

 

  

 

 

  

 

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