Last Friday marked the first day of spring! Like most people, you probably have plans to spring clean your house, wardrobe, car, etc., so why not add your investments to that list? Here are some helpful tips to help you with this task that you should take each year to help ensure that your financial life is in order.
- Rainy Day Fund- It is often suggested that you should have 3-6 months’ worth of expenses in a short-term investment account in case of an emergency. I would suggest 3 months if you have an available line of credit or 6 or more months if you do not.
- Rebalance your portfolio- In many cases, something in your portfolio outperforms the rest of it. When this happens, the allocation you started the year with is not the same as what you ended the year with. Make sure that you rebalance your portfolio so the percentages are in line with your beginning allocation. If Real Estate was 10% and it’s now 13%, sell some to get back to 10% if that’s where your allocation should be.
- Check your Asset Allocation- While it is important to rebalance a portfolio, make sure that the allocation you had at the beginning of last year is still the allocation that you want. Maybe things have changed in the world that may necessitate a change in your overall allocation. What worked years ago may not be where you should be today.
- Consolidate your accounts- This can be a big source of stress for many investors. They have accounts at multiple former employers, multiple fund companies, and with multiple advisors. This can lead to disorganization across accounts, investments, and strategies, not to mention potential additional fees. I always tell people that diversification should take place among holdings, not accounts or, worse, advisors. I never recommend multiple advisors, as they may not communicate with each other and may base their recommendations solely on the funds they manage, not your entire portfolio. This can be a problem because both advisors could be doing a good job for you, but the portfolio as a whole lacks diversification or a defined strategy.
- Review your Advisors- If the last one applied to you, then you need to figure out which advisor is helping you the most. Are they giving you good advice? Are they looking at more than just your investments? Have they started to prepare you and your investments for retirement? Are they a specialist in an area that fits your stage of life? Remember, you don’t go to your primary care physician for open heart surgery. Therefore, don’t use an investment “generalist” if you are in a specific stage of life. The same can be said for attorneys; seek out a specialist for things like estate planning, real estate, taxes, etc.
By doing this exercise every year, you can help keep your investments on track, and you may be less likely to have any “surprises” that come with a lack of attention each year.
Frequently Asked Questions About Spring Cleaning Your Investments
1. What does it mean to “spring clean” your investments?
It means taking time each year to review, organize, and adjust your financial plan—just like you would with your home. This includes checking your savings, investments, accounts, and overall strategy to make sure everything is still aligned with your goals.
2. Why is rebalancing my portfolio important?
Over time, some investments grow faster than others, which can throw off your original allocation. Rebalancing helps you:
- Maintain your intended risk level
- Stay aligned with your long-term strategy
- Avoid becoming overexposed to one area
3. Should I consolidate my investment accounts?
In some cases, yes. Having multiple accounts across different firms or advisors may lead to:
- Disorganization
- Overlapping or conflicting strategies
- Potentially higher fees
Consolidation can help provide clarity, efficiency, and better overall portfolio management.