3 Ways to Spring Clean Your Portfolio

Wealthy man with a feather duster
With the cold winter weather starting to thaw, it's a great time to tackle those spring cleaning projects -- not just at home, but in your portfolio, too.

The market's recent rise makes it a little easier to tackle the three tasks below. After all, it's much more fun to lock in a gain than it is to admit defeat and settle for the consolation prize of a potential tax loss write-off.

Clean-up tip No. 1: "Sell" every investment you own.

If you've got a life outside of your investments, you may be waking up this fine spring morning to find that your portfolio has become a collection of stuff you picked up along the way, rather than a concerted investment plan.

By acting like you plan to sell every investment, you'll best know which are the ones you're able to part with now, thanks to the market's recent generosity.

To get this perspective, put each investment into context and assess which ones are worth holding, take a look at each position you hold and fill in the blanks: "I own _____________ because of __________. I'd be willing to sell if ________________."

Whatever your reasons for owning each investment, ask yourself if it still makes sense for you to do so. You may find that the market's recent rise has generously given you exactly what you need in order to justify moving your capital to a more productive use. And if some haven't reached your sell criteria yet, you've made a list you can refer to later when they do.

Clean-up tip No. 2: Adjust your investments based on your timelines.

Next, you can use the proceeds from any sales to adjust your holdings based on when you'll need the money. This is important to assure that the cash will be there when it's needed.
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Money you need in the very near future -- in the next year or so -- should be either in cash or in something like a CD or a maturing Treasury bond that will automatically turn into cash by the time you need it. At today's low interest rates, even some bonds can be too risky to own for short term money, especially ones that are years away from maturing.

The longer you have before you need the money, the more risks you can take with it.

Respect the calendar. The market doesn't care when you'll need the money or how much of it you'll ultimately need. It took us more than five years to reset to the market highs from the last time stocks peaked.

Unless you've got somewhere in the neighborhood of that kind of time to wait for the next set of market highs before you need to spend the money, take today's high prices as a gift. As they say, a bird in the hand is worth two in the bush.

Clean-up tip No. 3: Reallocate to balance the risks you face.

By paying attention to how your money is allocated across investment classes, you'll be better able to manage across the variety of risks you face by investing. Remember, over the long run, there's no such thing as a risk-free investment. Here are the key risks facing common investment types:
  • Cash -- Abysmally low interest rates means that holding cash means losing ground to inflation, especially after taxes. And while other countries may have higher interest rates, holding their cash exposes American investors to currency fluctuation risks, as well.
  • Bonds -- Those same low interest rates mean that bonds face insanely high interest rate risks and can lose a ton of value when rates rise.
  • Real Estate -- In spite of the old maxim that they're not making any more land , remember that the recent financial panic and global economic meltdown was started by a real estate crash.
  • Commodities -- As Warren Buffett has famously said, "The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn't going to do anything for you."
  • Stocks -- No matter how wonderful the long term wealth creation prospects are in stocks, they can be incredibly volatile from day to day. Also, the company behind any individual stock can go bankrupt, with the common stock investors last in line for any meager recovery.
As a result of that reality that there is no such thing as a risk free investment, the best you can do is balance your risks by reallocating your portfolio across asset classes. It's largely a personal choice how to allocate, but remember to look at your total financial picture -- including your retirement accounts -- when you do.

Put a portfolio spruce-up on your calendar now

Use all three tips together, and you've got a simple portfolio spring cleaning strategy that will help assure your money works for you as hard as you worked to earn it in the first place.

These 10 Stocks Missed the 4-Year Bull Market
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3 Ways to Spring Clean Your Portfolio

(SPLS), down 2.4 percent
Big-box office supply store Staples has fallen prey to the same trends that have hit other big retailers: Internet competition makes it harder for companies to justify big investments in store locations. Recent mergers in the office-supply space could help Staples in the short-term, but it'll have to boost its own online selling to keep up with competitors in the long run.

(DF), down 7.3 percent
The agricultural sector has done well lately, but high crop prices mean expensive feed costs for dairy-producer Dean Foods. Moreover, with milk demand having steadily fallen over the past several decades, Dean faces demographic challenges in a declining industry, threatening its future growth prospects.

(PBCT), down 7.5 percent
This Connecticut-based savings and loan makes the list largely because of a delayed reaction to the financial crisis. Unlike big banks, People's United made it through the initial phase of the financial crisis intact. But in 2010 and 2011 it finally gave in to pressure that broadly hit the regional banking sector. The stock has rebounded lately but has a long way to go to get back to its former heights.

Photo: People's United Financial / Facebook

(BBY), down 10 percent
The big-box electronic retailer's woes are well-known, as the company has seen its massive stores become merely showrooms for shoppers to see products up close and in person before buying them more cheaply online. Recent discussions of a possible buyout have lifted shares, but investors are still sitting on long-term losses as Best Buy keeps struggling to find a path to stronger growth.

(EXC), down 10.2 percent
Electric utility Exelon is the biggest producer of nuclear power in the U.S., which traditionally gave it lower costs compared to more expensive fossil-fuel-burning rivals. But with natural gas prices having fallen so far, Exelon no longer has that competitive advantage. That has squeezed margins which forced the company to cut its dividend, leading many investors to flee the stock.

(HPQ), down 10.8 percent
Hewlett-Packard has suffered from declines in the PC industry, but a string of leadership changes also hampered the company from coming up with a consistent strategy for growth in the rapidly changing tech industry. Current CEO Meg Whitman has worked hard to reverse her predecessor's miscues. But despite some promising signs recently, the progress has been slower than most investors would like.

(SAI), down 24.1 percent
Defense-contractor SAIC has had to deal with the threat of budget cuts for years. Yet with its intelligence and technology systems, including cybersecurity-related products, SAIC would seem to have a cutting-edge advantage over more traditional military contractors. Still, with bigger competitors muscling in on SAIC's turf, SAIC now hopes that plans to split itself into two separate public companies will help it perform better than it has in recent years.

(PCS), down 29.5 percent
The revolution in smartphones and mobile technology has created many winners in the telecom space, but MetroPCS has largely missed out on the boom. With a substantial presence in low-cost prepaid phones, MetroPCS hasn't gotten to enjoy the popular releases that bigger rivals have used to power their profits. Even a possible merger with T-Mobile may not be enough to let MetroPCS assume a leadership role in the industry.

(APOL), down 74.4 percent
For-profit education companies have been under intense scrutiny from regulators who are concerned about the high loan-default rates for their students. With the potential for restrictions that would stop the flow of federal student-loan money into the industry, Apollo and many of its smaller peers have seen huge share-price declines, with negative publicity helping push enrollment figures down as well.

(FSLR), down 74.7 percent
The solar industry has seen a sea change lately, as governments around the world have cut back on heavy subsidies and forced companies to survive on their own to a much greater extent. First Solar's low-cost advantages have actually give it an edge on some harder-hit rivals, but the company needs to boost the efficiency of its products in order to compete better in the cutthroat market.

Even when markets are rising, some stocks fall. The key is to look for strength among the companies you invest in, so you can avoid money traps like these losing stocks.

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