Even your investments need a big spring cleaning!

Even your investments need a big spring cleaning

GUEST BLOG. With the arrival of spring, many have made the habit of cleaning up. Indeed, for many, it’s time to get rid of some items that have accumulated in the garage or shed during the winter. With spring, there is also the desire to embark on renovation projects – renovate the guest room, redone the pavement, enlarge the gallery, etc.

In investing, many people have the unfortunate habit of hoarding stocks and investments as they amass personal items. Like these, they end up being forgotten and languishing in the dust. In the long run, this is a good way to end up with a portfolio that is too diverse and, above all, inefficient.

When the spring comes, the moment seems particularly favorable to carry out a big cleaning in his personal belongings, in particular in his investments. An exercise that, in my opinion, should be done at least once a year.

In a more general perspective, this spring cleaning is a great opportunity to evaluate your portfolio as a whole. Does it still reflect your investment policy and your long-term financial goals? With the rise in the stock markets in recent years, perhaps you have not realized that the proportion of stocks in your portfolio was significantly higher than when you first set up your investment policy?

It is also an opportunity to ask you if you are too scattered. Have you accumulated too many titles over the years? Are your management fees too high? Should some investments that have not been performing for years be challenged and sold? Should you consolidate the number of your investment managers? Do you have enough cash in your wallet to buy if an opportunity arises?

The exercise forces us to review each of our titles and to revalidate the motives behind their purchase. Is our initial purchase scenario still on the road? Are there other titles on our radar that are more appealing?

I have touched on a few occasions the question of when to sell a security in the portfolio. In my opinion, this is the most difficult decision for an investor. Here are some elements we consider in our decision making:

– Has an investment become immaterial across our entire portfolio? This situation sometimes occurs with a security purchased many years ago that has not kept pace with the overall performance of our portfolio. Or with a title that has undergone a major correction. If you have stocks that are only a fraction of a percentage of your portfolio, ask yourself this question: “Will I be willing to substantially increase my investment in the stock?” If this is not the case, you you should probably get rid of it.

– Are the reasons why we bought this title still valid?

– Has the risk level of this investment become too high? This could be the case if its valuation is very high today or if the company is left with a lot of debt. The percentage of your portfolio invested in a security could also be too high.

These are all questions that should be asked regularly, at least once a year.

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