6 spring cleaning tips to put a shine on your portfolio
Financial markets always carry a degree of uncertainty but with the dust settling from the pandemic jolt, it’s the perfect opportunity to clear the air with a portfolio spring cleaning.
Spring is always a good time for a freshening up; the period between the registered retirement savings plan (RRSP) contribution and tax filing deadlines, and the care-free days of summer.
Here are six things that should be reviewed, changed, or just polished:
BALANCE ASSET CLASSES AND SECTORS
Too much of one thing could put your entire portfolio at risk.
The right weighting in each asset class and a diversified array in each major sector and geographic region will limit the impact of isolated losses when they occur, and keep your portfolio open to opportunities when they pop up.
It’s also important to keep a portion of your nest egg in fixed income to cushion the impact of riskier equities. While the rapid hike in interest rates is putting the squeeze on borrowers, it has rewarded savers with higher yields from fixed-income products like Guaranteed Investment Certificates (GICs), government bonds, and even investment grade corporate bonds.
Fixed income comes especially handy in or near retirement when you need cash for living expenses. The proportion of your portfolio that should be in fixed income depends on your retirement goals and tolerance for risk, but should increase as you get older.
TRIM THE WINNERS
It’s also good to have a significant portion of your portfolio in cash to jump on investment opportunities as they arise. A good way to generate that cash is to trim the winners.
Technology stocks, for example, have outperformed the broader index so far this year. Where they will go from here is speculation but they might have taken an oversized weighting in your portfolio
It could be time to trim profits to generate cash and rebalance your portfolio by deploying it in under-represented sectors as they recover.
Each investment should be considered individually.
SCRUB AWAY THE LOSERS
In contrast, financials have underperformed the broader market.
That doesn’t mean all financial stocks are bad. In many cases, they could be suffering from an isolated incident and present an opportunity to buy more at a discount with the cash you raised from trimming the winners.
In some cases it might be best to throw in the towel. If you think you have a loser, compare its performance with other stocks in the same sector. If there are no obvious short-term reasons for its underperformance, it might be time to take a loss and deploy the cash toward something with more potential.
LOOK FOR BIG-PICTURE THEMES
If you invest for the long term, think about long term trends such as the ongoing rollout of 5G internet or the shift toward clean energy.
There is a lot of credible research available that looks way beyond the present. It’s difficult to predict which companies will benefit the most, but a safer way to get exposure to tomorrow’s winners is to buy entire sectors through exchange traded funds (ETFs).
TAP INTO INCOME STREAMS
In addition to fixed income yields, a good way to generate income is through stocks that pay rich and consistent dividends. They aren’t as safe as GICs or government bonds because they trade on equity markets but traditional dividend stocks, like the big Canadian banks, rarely miss or lower their dividend payouts.
Dividends are often an afterthought but for long-term investors they really add up over time. Most companies, mutual funds and exchange-traded funds (ETFs) that pay dividends offer dividend reinvestment plans (DRIPs) that automatically use dividend payouts to purchase more shares or units.
SPEAK WITH A QUALIFIED ADVISOR
Finding the best dividend payers, identifying themes, buying and selling, and creating a balanced portfolio - all tailored to you - isn’t easy for the average investor.
A qualified advisor should have experience in all areas of portfolio management and access to the best research and financial information.
Spring is also a good time to get the undivided attention of an advisor. Be sure to discuss fees and determine if the cost will justify long-term return potential.
Spring cleaning always goes easier when a professional does the heavy lifting.
Spring is always a good time for a freshening up; the period between the registered retirement savings plan (RRSP) contribution and tax filing deadlines, and the care-free days of summer.
Here are six things that should be reviewed, changed, or just polished:
BALANCE ASSET CLASSES AND SECTORS
Too much of one thing could put your entire portfolio at risk.
The right weighting in each asset class and a diversified array in each major sector and geographic region will limit the impact of isolated losses when they occur, and keep your portfolio open to opportunities when they pop up.
It’s also important to keep a portion of your nest egg in fixed income to cushion the impact of riskier equities. While the rapid hike in interest rates is putting the squeeze on borrowers, it has rewarded savers with higher yields from fixed-income products like Guaranteed Investment Certificates (GICs), government bonds, and even investment grade corporate bonds.
Fixed income comes especially handy in or near retirement when you need cash for living expenses. The proportion of your portfolio that should be in fixed income depends on your retirement goals and tolerance for risk, but should increase as you get older.
TRIM THE WINNERS
It’s also good to have a significant portion of your portfolio in cash to jump on investment opportunities as they arise. A good way to generate that cash is to trim the winners.
Technology stocks, for example, have outperformed the broader index so far this year. Where they will go from here is speculation but they might have taken an oversized weighting in your portfolio
It could be time to trim profits to generate cash and rebalance your portfolio by deploying it in under-represented sectors as they recover.
Each investment should be considered individually.
SCRUB AWAY THE LOSERS
In contrast, financials have underperformed the broader market.
That doesn’t mean all financial stocks are bad. In many cases, they could be suffering from an isolated incident and present an opportunity to buy more at a discount with the cash you raised from trimming the winners.
In some cases it might be best to throw in the towel. If you think you have a loser, compare its performance with other stocks in the same sector. If there are no obvious short-term reasons for its underperformance, it might be time to take a loss and deploy the cash toward something with more potential.
LOOK FOR BIG-PICTURE THEMES
If you invest for the long term, think about long term trends such as the ongoing rollout of 5G internet or the shift toward clean energy.
There is a lot of credible research available that looks way beyond the present. It’s difficult to predict which companies will benefit the most, but a safer way to get exposure to tomorrow’s winners is to buy entire sectors through exchange traded funds (ETFs).
TAP INTO INCOME STREAMS
In addition to fixed income yields, a good way to generate income is through stocks that pay rich and consistent dividends. They aren’t as safe as GICs or government bonds because they trade on equity markets but traditional dividend stocks, like the big Canadian banks, rarely miss or lower their dividend payouts.
Dividends are often an afterthought but for long-term investors they really add up over time. Most companies, mutual funds and exchange-traded funds (ETFs) that pay dividends offer dividend reinvestment plans (DRIPs) that automatically use dividend payouts to purchase more shares or units.
SPEAK WITH A QUALIFIED ADVISOR
Finding the best dividend payers, identifying themes, buying and selling, and creating a balanced portfolio - all tailored to you - isn’t easy for the average investor.
A qualified advisor should have experience in all areas of portfolio management and access to the best research and financial information.
Spring is also a good time to get the undivided attention of an advisor. Be sure to discuss fees and determine if the cost will justify long-term return potential.
Spring cleaning always goes easier when a professional does the heavy lifting.
