Why These Investors Overhauled Their Portfolios

Last week was Portfolio Makeover Week on Morningstar.com. Each day, our director of personal finance Christine Benz helped individual investors check their progress, assess allocations, target holes and overlap, and upgrade their holdings.

In the same spirit, we asked Morningstar.com readers to tell us about their last portfolio makeover. Whether they overhauled their asset allocation, made investment changes, or streamlined for tax management considerations, we wanted to hear about what prompted their big move and how satisfied they are with the results.

Overall, most readers reported that they were happy with the changes they made. The catalysts that prompted them to make over their portfolios differed, however. Some respondents said they were propelled to action by the financial crisis of 2008, while others decided to remake their portfolios as retirement loomed nearer. There were some commonalities; for instance, it seemed many makeovers had two main goals: The first was to streamline and simplify the portfolio, perhaps by reducing the overall number of holdings or number of accounts, or moving from actively managed funds to passive strategies that require less monitoring. The other goal in many cases was to reduce the portfolio's overall volatility; some readers specifically mentioned that they were increasing their cash holdings to cover one to two years' worth of spending needs.

The following is a summary of the discussion. To read the full thread and weigh in yourself, please click here.

'My last makeover was shortly after the 2008 crash' Some respondents, such as PaulR888, said that the financial crisis of 2008 spurred them into action--prompting them to become more knowledgeable about investing and to retool their portfolios.

"My last makeover was shortly after the 2008 crash when I lost my compass and was clueless on what to do," PaulR888 wrote. "I went to a financial advisor and she rebuilt my portfolio. I became disenchanted with her because her approach was too scattered for me. I took back management of my portfolio. I educated myself and since I retired in 2013 I keep educating myself through podcasts, webcasts, and Morningstar. I have evolved an asset allocation that I am comfortable with."

PatrickBr said: "My last makeover was prompted by the financial meltdown, during which I was also dealing with new assets from an estate. [That] caused me to really upgrade my knowledge about investing and tax harvesting and taught me about my core abilities for investing under conditions of high uncertainty.... Anyway, I am very glad I hung in there."

'I did a minor makeover…as I moved into retirement' Some readers, such as Darwinian, said that transitioning into retirement was the impetus for remaking their portfolios.

"I did a minor makeover, starting two years ago, as I moved into retirement. This included increasing my cash holdings (to 1.5 years of retirement income need), reducing my number of funds, and lowering volatility," wrote

Darwinian

. "I dropped DFA US Large Cap Value I DFLVX and increased

Flhtc9

said: "The last portfolio makeover was in Jan 2012 when I retired at age 66. I rolled my Fidelity 401(k) into my Vanguard IRA. The mix was 60% stocks and 40% bonds. I was already 100% index funds at Fidelity, and when I completed the Vanguard rollover, I was 50% stocks and 50% bonds, all indexed."

'I became an indexer!' A few readers noted that they have moved away from actively managed strategies toward passive ones.

Hobocon wrote: "I do have one or two managed equity funds still today, and one or two publicly traded company stocks, but usually 80% or more of my equities are in index funds. I have sold out of bond funds from say 2013-14, and now hold my bucket number one (as good as cash money) in a 401(k) stable value fund that pays 2% interest. This stable value fund holds seven years' of retirement basic income. Retirement for me is less than one year away."

"I remade my portfolio three years ago when I moved from a company with a 401(k) with all actively managed funds to a company that had a 401(k) with index funds," said bgstuhan. "I also moved from individual stocks and actively managed funds in brokerage accounts and IRAs to index funds and ETFs and consolidated accounts. I've gone from five accounts to three--a 401(k), Roth IRA, and taxable brokerage account--and have cut the management fees across the portfolio from 0.9% to under 0.3%."

'I'm currently in the process of a long, slow makeover.' Finally, other respondents, such as mrpcid, said that they are in the process of remaking their portfolios slowly and deliberately. Having the luxury of a longer time horizon can be beneficial when it comes to remodeling a portfolio, as it may allow you to pay better attention to valuations and tax considerations along the way.

"I'm comfortable with asset allocation and location, and for the most part selection, except that there are way too many of the latter," said mrpcid. "I have 41 non-cash holdings, and while the top 10 comprise 68% of non-cash assets, I have several that are less than a percent. Most also have significant capital gains, so I'm just occasionally selling here and there and consolidating proceeds into the larger core holdings over time. [I] will probably wait until the first year or two of retirement (five to six years away) to trim the others when I can do so with much less tax bite."

Proxysteve is also in the process of a multiyear makeover started a few years ago, and this reader expects it to take another year or two to finish. "As I neared retirement (still a year or two away), I decided that none of the standard approaches to retirement suited my personality and comfort level…. Previously, I had a standard asset allocated portfolio with a mix of passive and active funds. More active than passive, and more funds than I needed. I always intended to have a large cash bucket as well (probably two years)."

Tomas47 said: "I began my makeover when I retired in 2003, and it took about three years to fully implement. Since then I have been tweaking it very modestly to simplify and get various holdings in the right places, i.e. taxable account versus IRA. At retirement, about 40% of our net worth was in my employer's stock (retirement plan) and stock options (deferred compensation). I immediately reduced that to about 18%, and now have it down to less than 3% of total portfolio value. My target allocation is 60:40, equity to fixed, with a tilt to small cap and value. I use index funds/ETFs."