Improve Your Portfolio by Streamlining
Christine Benz says investors should reduce complexity by consolidating accounts or holdings within accounts.
Christine Benz: I'm Christine Benz for Morningstar.com. One of the best things you can do to improve your portfolio is to reduce the number of moving parts. Start at the account level. Do you have multiple accounts that are geared toward the same goal? Some of these accounts have to remain distinct for tax reasons; for example, you can't consolidate a taxable brokerage account with an IRA. But you can collapse like accounts together; for example, maybe you ended up with multiple traditional IRAs because you rolled over your 401(k) assets from former employers. In that case you can combine these accounts into a single IRA. That leaves you with fewer holdings to oversee. Having more assets with a single firm may also qualify you for cheaper share classes than you'd be eligible for if your account were smaller.
You can also look at consolidating your holdings within accounts. Diversification is good, but it's possible to overdo it. Be on the lookout for multiple funds within the same category, as well as sector and region-specific funds that might duplicate exposure that you have through your better-diversified holdings. If you're trying to choose between two holdings that provide similar exposure, keep the one that’s better diversified and lower cost. Morningstar's Medalist ratings for mutual funds and ETFs are a great shortcut when you're trying to decide between two holdings; the ratings are designed to provide a forward-looking assessment of a fund or ETF-s prospects. Employing broad-market index funds is a simple way to reduce the number of holdings in your portfolio and lower your total costs.
If you want to keep your portfolio even more streamlined, an all-in-one fund can be a great option, especially for smaller accounts. Balanced funds that combine stocks and bonds were the original all-in-one funds and are incredibly low-maintenance; target-date funds are similarly hands-off but feature an age-appropriate asset allocation mixes.
Thanks for watching. I’m Christine Benz for Morningstar.com.