Get rid of the clutter in your life – and your portfolio

Spring has sprung, but have your investments transitioned from the winter blues to spring blossoms?

The American Cleaning Institute found that 72% of households engage in spring cleaning each year. They give up their weekends and their complacency for the greater good of their homes. For investors, embarking on a portfolio clean up means first overcoming the lure of checking on their portfolios too much—and when they do decide to tidy up, the emotional hurdles of investing.

This spring, be sure to clean out your portfolio junk drawer the way you would any other drawer in your home.

Survey what you have

We all go out and buy some crazy equipment that we don’t understand. Maybe we really thought we were going to get into woodworking or fishing and now our garage is filled with reels, rods, radial arm saws and rotovators.

The same goes with our portfolios.

We invest in companies we used to work for, hot stocks recommended on CNBC or old investments that used to provide diversification.

The best thing to do to start spring cleaning your portfolio is to assess everything you have, including:

  • Stocks, tasked with providing major performance
  • Bonds, meant to provide some defense
  • Alternatives, which can handle things like lowering maximum drawdown and volatility

Investments spring cleaning

Let go of nostalgia and dump what you don’t need

The temptation to hold on to those old things is great. You had the best intentions to come home with a prize winning 200-pound marlin or a beautiful new stained coffee table. It’s just as easy to let the bond ladder your college roommate learned about in finance class linger in your portfolio for 20 years.

But all that nonsense isn’t just cluttering your garage and portfolio—it takes up brain space, too.

Research done by UCLA shows that in your home, more clutter means more stimuli for your brain, which increases stress and reduces productivity.

The same principle can hold true for your portfolio. For example, bonds aren’t providing the full diversification they used to, so don’t overweight your portfolio with them just because they’ve worked in the past. Same with stocks – even John Bogle has said that we’ll need to adjust expectations and prepare for lower returns in the future.

Instead of sticking with what’s worked in the past, clear the investment clutter by rebalancing your portfolio. This can help you take advantage of investments which have historically provided returns over the long term. If you snag those assets during a time of underperformance, the allocations you used to stuff in your junk drawer can turn into a gold mine.

Bonus: spring cleaning means more efficiency

Yes, it’s nice to look at a clean space, but that’s not the real benefit of your spring cleaning duties.

Spring cleaning helps you maintain that tidiness, reducing the temptation to add clutter while encouraging healthier long term behavior.

It’s the same with your portfolio.

A balanced portfolio, where you evaluate the way the investments work together, can put you in the position to generate returns in a variety of market environments.

So, don’t think of spring cleaning as a frivolous seasonal fad. It can actually help you eliminate the stress in your life and bring everything around you back into balance—from your garage to your investment portfolio.

Article by Eric Crittenden, Longboard Funds