Spring is in the air. For many, when the season changes and starts anew, so do they. An annual spring cleaning is a time to get rid of the old and start fresh. This can be true for investors, too. Consider the following tips to review portfolios and evaluate what is worth holding on to for another year, and what needs to be cleaned up or thrown out.
Your home spring-cleaning may include a checklist of key maintenance items, like testing batteries in your smoke detectors and appliance filter cleanings and inspections. Similarly, investors should review their risk tolerance and investment strategy each year to see if their tolerance has changed and if their investments are appropriate to avoid being over- or under-exposed to market risk. Loss of income can make an investor more conservative, whereas a windfall may make them more aggressive. Additionally, a pending retirement can impact one’s risk profile as well. Take inventory of your investment needs and timelines. Successful investing is more than just strategy. It’s also knowing a true sense of your comfort range; some investors prefer the thrill of the high wire while others would rather stick closer to solid ground. This is why it’s important to evaluate risk tolerance on a regular basis. Doing so will give you an updated gauge of your investment expectations compared to current investments.
Just like old clothes in the back of your closet you may have been hanging on to for sentimental reasons or intentions that they may one day fit again, there may be holdings in your portfolios you have kept passed their prime. Investors should review their holdings to see if any particular investment is on a downward trajectory or no longer makes sense as a part of the investment strategy. While knee-jerk reactions are not recommended, being aware of long-term trends is. In many cases, it could make sense for an investor to set emotional attachment aside and consider reallocating those dollars to a well-diversified investment product. Many investors have a tendency to buy and hold even after it no longer makes sense.
Avoid High Fees
Internal expenses of investment holdings can be like a termite in a portfolio, eating away beneath the surface at the bottom line and weakening the long-term earning potential. The high cost of investing decimates portfolios over time and severely curtails earnings expectations, ultimately resulting in less income from investments in retirement. Investors spend billions of dollars annually in investment fees. According to the White House Council of Economic Advisers, more than $17 billion per year is lost just in undisclosed fees for retirement accounts alone. Worst of all, the costs aren’t necessary to achieve stellar portfolio performance. Time and again market gains don’t make up for investment costs. For example, in the SPIVA® U.S. Scorecard for year-end 2015, 82.14% of large-cap, 87.61% of mid-cap and 88.42% of small-cap fund managers failed to outperform their relative benchmarks over the previous 10-year investment horizon. If an investor is counting on portfolio earnings to fund future expenses—living costs in retirement, for example, or college expenses for a family member—he or she has to find an alternative to high-cost investing.
Beacon Capital Management offers investors many solutions to these annual portfolio upkeep tasks through its Beacon Vantage 2.0 portfolios. Designed with the long-term in mind, portfolio holdings are well diversified to insulate from sudden market downturns utilizing low-cost ETFs. They are mechanically monitored and adjusted to stay in line with the investment strategy and risk exposure without the high cost of active management. No matter an investor’s risk profile, Vantage 2.0 is offered in aggressive, balanced and conservative models, giving investors options for growth in their portfolios to meet their needs. To learn more about Beacon’s portfolio options, or to download our white paper: Portfolio Expenses Can Ravage Portfolio Performance, visit BeaconInvesting.com today.