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At some point you will need to make
changes to your investment portfolio. Often, investors and their
advisors make wholesale changes all at once. But that’s not really
in your best interest. Read on to find out how to successfully
adjust your portfolio.
In a previous article I discussed the importance of matching the
investment strategy used to expected market conditions. Using the
wrong strategy at the wrong time can be devastating—as many found
out in 2000-2002. In follow up articles I provided specific
strategies to significantly increase portfolio income, and other
strategies designed to double your money every 5-7 years in
single-digit return markets.
You can read those articles at http://www.guardingyourwealth.com.
Perhaps you’ve decided to make changes to your portfolio. It may be
to take advantage of the strategies I’ve discussed. Or it could be
because your life situation and needs have changed. Or it might be
that you’ve neglected your portfolio garden and there are as many
weeds as vegetables. Regardless of the reason, keep these steps in
mind. They’re the ones I follow when transitioning a client’s
portfolio.
1) You need to analyze your existing portfolio. Take a close
inventory of your investments and research their performance. The
last thing you want to do is to cut down the wrong plants while you
are weeding your garden!
You can find performance information for many investments at
www.morningstar.com. It takes more work but it’s better to calculate
your actual return. Subtract what you invested into a particular
holding from what it’s worth now. If dividends and interest aren’t
being reinvested, then add any dividends/interest paid to that
figure. Divide that figure by your initial amount invested. For
instance, if the result is .015, then that investment earned 1.5%.
Look at that return in relation to the length of time you’ve held it
to determine whether or not it needs to go.
2) You may need to change your attitude toward investments. It’s
easy to become attached to a particular investment. Don’t. It’s
there to make you money. If it does, great. If not, find another
that will. Constantly ask yourself, “If I were investing this money
today, would I buy this investment?” If not, then it’s a weed.
3) See if there are surrender penalties or other charges associated
with getting rid of the weeds. If it is a mutual fund, there are
penalties associated with B shares and sometimes with C shares.
Annuities are notorious for onerous penalties.
4) Wait for the right time to sell your weeds. There may be an
investment that you want to change that is currently trending up.
Don’t sell it then; wait until it starts to decline in value. Doing
this for my clients has earned them several percent just by watching
and waiting.
5) Conversely, after the weed is sold, don’t feel rushed to jump
right into another investment. There are cycles to every type of
investment. Wait for the right time. If it’s a stock, determine a
buy ceiling—you’ll only buy it if it trades at or below that price.
Then wait. Even if it takes months, it’s better to keep that money
in cash than to pay too much.
6) Closely tend your new garden. We can’t throw some seeds in the
ground, ignore them and expect to come back later to reap a harvest.
Gardens must be tended. So does a portfolio. No matter what the
investment, it is important for you to monitor each one and to make
adjustments when necessary.
Many advisors want you to think that if you buy a certain product,
all your worries will be gone. You can set it and forget it, they
say. It’s not true. In these cases, they are the ones who are going
to set it and forget it! You’re better on your own than using one of
these advisors.
Like gardening, investing is hard work. There are some that really
enjoy it, while others just want the harvest. If you don’t have the
time to properly tend your garden then find a professional who will
do it for you. Ask them how they would transition your portfolio. If
they don’t follow these steps it’s a clear sign they aren’t the
advisor for you.
I’ll personally respond to your questions, free of charge. Go to
http://www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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