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Give Your Portfolio a Fresh Start This Spring

Christine Benz
Susan Dziubinski

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. It's the time of the year when many of us set our sights on washing windows and cleaning up the yard. But this can also be a great time to spring clean your portfolio. Joining me to discuss some tips for doing just that is Christine Benz, director of personal finance for Morningstar.

Christine, thanks for joining us today.

Christine Benz: Susan, it's great to be here.

Dziubinski: Now, why is spring a good time to give your portfolio a review and maybe clean out some of the dead wood?

Benz: Well, one of the key reasons is that this is usually the time when we've got all those tax documents out, or tax-related documents. So, you probably have some of the key things top of mind. And sometimes tax season is a reminder that maybe our financial lives are a little more complicated than is ideal. So, it's a good time to do some pruning, maybe make some changes to streamline things a little bit.

Dziubinski: And what are some of the advantages to decluttering your portfolio?

Benz: Well, tax season is easier, but it also means if you are able to streamline your accounts and in turn your holdings a little bit, it gives you fewer moving parts to monitor on an ongoing basis. I think that's a huge plus--we are all busy. And it also reduces the chance that you will have such a sprawling portfolio that you are kind of generating indexlike returns, but you are not necessarily paying indexlike expenses. I see that a lot--where people have assembled so many holdings, they've kind of got an index portfolio there, but they don't have index fund expenses.

Dziubinski: So, where should investors start if they want to undertake this process?

Benz: I think one of the key things to look at is whether you can do some streamlining at the account level. So, the typical person today has 12 jobs in his or her lifetime. People have old retirement accounts that have piled up. So, you might have old rollover IRAs, little silos here and there. Or you might have 401(k) plans left behind with former employers. You can clean all that up. Usually, the best thing to do would be just to roll it all into one mega IRA. But if your company retirement plan is really good, you might even be able to roll the assets into the plan. So, ask your employer if you really like that 401(k) plan.

Dziubinski: And what about brokerage accounts? That's another area that maybe investors should take a look at?

Benz: Anecdotally, when I look at investors' portfolios when we do our portfolio makeovers every year, that's one thing I see--where people kind of have these token equity portfolios, four or five stocks. Sometimes they are duplicating exposure that is already existing in mutual fund holdings that they might have. And then, another thing people might not think about is that those small brokerage accounts might incur some sort of carrying cost. So, there might be administrative expenses associated with those accounts. If you are not really paying that much attention to the account, you might want to think about just rolling it into a fund portfolio. If you are an avid individual stock investor, by all means, keep going. But if it's not really something you are that into, consider streamlining.

Dziubinski: And how can we declutter our cash holdings? What about there?

Benz: Well, this is something to take a look at right now. For a while, it didn't really matter where your cash was. The yields were close to zero. Now, we are really starting to see a big differential open up between higher-yielding instruments like money market mutual funds, like CDs, like online savings accounts and everything else, which is, in many cases, not yielding much. So, take a look at that. See if you can't roll some of those token cash amounts into other accounts that will give you a higher yield.

Dziubinski: And moving away from the individual account level, what about looking at your long-term portfolio allocations this time of the year?

Benz: I think it's a really good time to do that, Susan, because we had a tremendous rally in the equity market in particular, but bonds had a great first quarter. If investors haven't taken a look at their asset allocation--and I'll concede it's been pretty easy to let things ride with the exception of the fourth quarter of 2018--if you haven't been paying attention, I think it's probably a good idea to tune back in, use our X-ray tool to see where your portfolio stands today and see if perhaps you don't need to take some risk off the table.

Dziubinski: And lastly, you think health savings accounts are another area that perhaps investors should be looking at and paying attention to?

Benz: Right. So, these are accounts that are available if you are covered by a high deductible healthcare plan. And one thing that I've noticed in talking to people who use HSAs is that they've been using them for a while, they've been funding them for a while, and they've started to build up way more in their HSAs than they need to pay ongoing healthcare expenses. Or maybe they are not spending from their HSA at all in an effort to preserve those great tax features of the HSA.

So, my advice is, if you want to get that money invested, you should think about doing so. And Morningstar has done some great research where we've looked at the best HSAs for investors as well as people who are spending them as they go. And the best--the favorite--HSA for both savers and investors was called HSA Authority. So, that's one to investigate. Even if you are captive in your company-provided HSA, you can actually do a transfer out into the HSA of your choice. So, that's something to consider.

Dziubinski: Christine, thank you so much. A lot of great spring-cleaning portfolio ideas here today.

Benz: Thank you, Susan.

Dziubinski: Thanks. For Morningstar.com, I'm Susan Dziubinski. Thanks for tuning in.