Three Easy Steps to Boost Your Returns
How to keep your portfolio humming with little fuss.
How to keep your portfolio humming with little fuss.
By now, most investors have probably long ago completed their year-end portfolio revamping. As such, the idea of making further tweaks as we head into summer probably isn't all that appealing. After all, why lose valuable beach time to sit home crunching numbers? I'm with you, but nevertheless, there are some small moves you can make with minimal effort that might boost your portfolio's value in the long run. Here are three that I'm doing myself.
Cut the Fat
With most investors owning funds through a variety of accounts, chances are that your family's portfolio is getting a little unwieldy. As such, you could benefit by cutting the fat from your portfolio. A good place to start is by examining overlap by using our portfolio Instant X-Ray tool. If you own a large number of funds from the same fund family or more than one fund that uses the same investment style, chances are that many own the same stocks. (While this is less of an issue with the larger fund families, it's one that nevertheless exists at that level, too.) Alternatively, you could consider chopping the fund in your portfolio that's the most expensive relative to its peers. That seems especially appropriate, as plenty of funds have lately been cutting fees.
Make a Contrarian Move
This summer, fight back your instinct to buy the next hot fund. Rather, spend some time identifying funds that have been out of favor. That might mean boosting your allocation to a fund from a lagging category or finding one in your portfolio that has simply hit a lean patch. Of course, to differentiate between a fund that's truly lousy and one that's temporarily underperforming, be sure to evaluate whether management has the conviction to stick with its strategy even through tough stretches. There's nothing worse than a management team that gives up even as you're sticking it out. And now that we've had some up and down periods in the past few years, you can really look to see who's been chasing trends and who's had the conviction to stay focused.
Review Your Exposure to Credit Risk
While junk bonds have been selling off a bit lately, there's a good chance that if your bond funds have done well over the past year, it's because they take on lots of credit risk. If so, you've probably made good money but may now have a lot of exposure to lower-rated issues. As such, now seems like a good time to cut that exposure back. Similarly, on the equity side, some of the most talented managers now have a pronounced bias to higher quality firms (as measured by their financial strength), and it might not be a bad idea to take a page from their books and curtail your exposure to funds that have simply made a killing by investing in lower quality firms of late.
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