Adaptado de artículos de Stacy Francis, CFP®, CDFA®, y Manisha Thakor, MBA, CFA, CFP®.
Most portfolios don’t go off track because of one bad decision, they drift over time. Markets move, life changes, and what once felt like the “right mix” can quietly become riskier (or more scattered) than you intended.
This checkup is a simple way to stay aligned with your goals. You’ll learn how to rebalance at least annually, “clean out” holdings that no longer fit, right-size how many investments you own, and strengthen your diversification—without trying to predict what the market will do next.
Keeping Your Investment Portfolio Balanced
Is your portfolio balanced? Rebalancing a portfolio must be done at least once a year. It involves periodically readjusting your mix of assets. Start by establishing an initial asset allocation, assigning percentages of the portfolio to assets such as stocks, bonds and cash, and perhaps other types of investments such as real estate and commodities. The allocations are further broken down by subcategories, such as different types of stocks and bonds.
The target allocations should be appropriate for your objetivos de inversión y financial circumstances, as well as your comfort level with certain types of investments. A woman with no children and nearing retirement will likely have a different asset mix than another who is right out of college in her early accumulation years.
Why rebalance just because a portfolio no longer matches its original allocation? Why not just let it ride, especially if the market’s going up? Because if you don’t, you increase the risk that you won’t achieve your investment goals. Say you had 55 percent in stocks and 45 percent in bonds in the early 1990s. Unless you rebalanced along the way, by the end of 1999, that mix might have become “unbalanced”—say, 80 percent in stocks and only 20 percent in bonds.
You know what happened next. This stock-heavy portfolio (especially if it was loaded with tech stocks) suffered more when the stock market declined drastically over the next three years than it would have had it maintained its original 60/40 balance through periodic rebalancing.
How much to allow a specific asset category to shift before readjusting it is up to you, but a common guideline is five percent. To rebalance, consider directing future investment funds into those underrepresented categories until it’s back in balance. You also can readjust by selling off some of the overrepresented assets (the winners) and buying the underrepresented (the losers)—selling high and buying low.
Savvy Tip: Before you rebalance by selling investments, consider the potential tax impact, especially in taxable accounts, where selling appreciated holdings can trigger capital gains taxes. Depending on your situation, you may be able to rebalance in more tax-aware ways, such as directing new contributions to underweighted areas, rebalancing inside tax-advantaged accounts (like an IRA or 401(k)), or using losses to offset gains. If you’re unsure which approach fits your portfolio, submit a question to the Savvy Ladies Línea gratuita de ayuda financiera to get matched with a pro bono financial professional for unbiased, one-on-one guidance.
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Cleaning Up Your Investment Portfolio
Just like you clean out your closet in the spring, clean out your investment portfolio as well. Schedule an appointment with your planificador financiero to discuss the following:
- Is all or a portion of your capital invested in a fund, industry, market or company you no longer believe in? If so, it may be time to toss. The same applies if a fund has gone through a shift in management or style that you feel is for the worse. You can access this information in annual reports or through Google.
- Monitor Morningstar ratings for your funds (but not religiously). The score (one through five) will tell you how well a fund is doing compared to similar funds and relevant indexes—not how good of an investment it is overall. This is why it’s crucial to do your own research too. A two-star fund in an upcoming industry may be a better option than a four-star fund invested in a troubled sector.
- Have any new industries, companies, funds, or markets sparked your interest lately? Have you done your research and feel fairly certain they’ll do well in the future? You may want to send some of your dollars in that direction.
- Do you need to be more conservative or could this be an opportunity to speculate a little? Your investment strategy should change not only with age (typically, the older you get, the more conservative it should be), but also with new market circumstances. If you are young and have plenty of time, you may want to take advantage of opportunities to buy stocks (and stock funds) for less.
How Many Investments Are Too Many?
One question I get all the time is: how many investments should I go for—2, 5 or 1,000? With a virtually unlimited number of securities available and a limited budget (for most of us, anyway), how do you get the most out of your money?
There isn’t one magic number. The “right” number of holdings depends on your total portfolio size, what you’re trying to accomplish, and how much complexity you can realistically manage.
If your total investment capital is, say, $5,000, a diversified mutual fund or ETF (Exchange Traded Fund) might be the better option. With only $5,000 it will be difficult to get broad market exposure. If, on the other hand, you have several million bucks to invest, you can create your own mutual fund by purchasing many different stocks and bonds. Fifty positions of $20K each may be the answer, or twenty positions of $50K. Or fifteen positions of various sizes depending on what securities you like the most.
Of course, to a certain extent, the optimal number of holdings can depend on the number of promising investments out there. At times, thirty different stocks, funds, or bonds can look promising, while at other times it can be as little as three or four. You may have a very specific idea of which industries and companies you’d like to trust with your cash—or you may want to diversify widely to dilute risk and feel safer.
It is true that if you own every fund out there, you will own all the winners. The problem is, you will own all the losers too. The key is to look at the fundamentals, identify your reasons and—together with your advisor—find the one, or two, or ten, or twenty investments that work best for you.
LEER: Cómo pensar en la selección de acciones individuales por Stacy Francis, CFP®, CDFA
Strategies to Strengthen Your Investment Portfolio
Here are three techniques you can use to stay diversified, strengthen your investment portfolio and protect it from risk:
- Think international. In times when the U.S. markets are anything but rosy, it is tempting to give up and simply dump your money in a bank account. But if you widen your horizons, you will find that not all countries are headed into a recession—at least not at the same time.
- Think creative. Don’t dump all your capital into the financial version of Top 40 music. Instead, keep your ears and eyes open for new ideas—or new twists to old ideas—that you believe in.
- Invest in what you know. Do you have a Ph.D. in molecular biology? That gives you an edge over most people if you choose to invest in, for instance, biotech. Perhaps you have strong reasons to believe that a certain product under development is going to work. Whatever your field is, knowledge is money—and when you know more than the masses, you may have better chances than they do to make money. Of course, you always have the option to hire an expert who can help you gain this advantage.
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Don’t Forget About Opportunity Cost
Every investing decision has an “invisible price tag”: opportunity cost—what your money can’t do because you chose to use it somewhere else.
That’s why this portfolio checkup matters. Rebalancing helps prevent unintended risk from creeping in. Cleaning up your holdings keeps your money focused on investments you still believe in. And right-sizing how many investments you own reduces the time, fees, and mental energy spent managing complexity, so you can put your attention (and dollars) where they matter most.
A helpful final question to ask yourself: “If I had this money in cash today, is this what I would choose to do with it?” If the answer is yes, stay the course. If it’s no, that’s your cue to revisit the plan—and make sure your money is working toward your real priorities.
Want help applying this to your own portfolio? Ask your question on the Savvy Ladies Línea gratuita de ayuda financiera y te pondremos en contacto con un profesional financiero que te ofrecerá asesoramiento personalizado e imparcial de forma gratuita.
