Maintain Control of Portfolio

It is so easy to add bits and pieces to a portfolio to where it is out of control.  Several of the portfolios I track are in or getting close to this condition.  What happens is that an investor picks up information on a stock or ETF that appears too good to be true and that investment is added to the portfolio.  Sometimes the addition is in such a small percentage that it will never contribute to the overall performance of the portfolio.  If this is the case, why bother with the investment.  I call these "shard" investments.  Sometimes we end up with shard stocks as a result of spinoffs.  We have no control over these events, but we can control what is in the portfolio if we decide to buy.

How do we avoid the problem of a portfolio loaded up with bits and pieces of various ETFs, mutual funds, stocks, and bonds?  The key is to have an investment plan and stick with that plan.  Use a rule of thumb calculation where there will not be more than 60% more investments in the portfolio than there are asset classes.  As an example, assume the portfolio plan calls for 12 asset classes.  In this case, assume the maximum number of holdings will not exceed 1.6 x 12 or 19 to 20 investments. One might go as high as 25, but that is about the upper limit for a Mosaic style portfolio.

Examine your portfolio to see if it is getting out of control.  With the market as high as it current is, now is a good time to clean house and bring the portfolio back to a manageable set of investments.

Check out this portfolio construction blog entry.

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About Lowell

Retired physics teacher. My hobbies are photography, reading and classical music. And my latest hobby - taking care of my dog, Kipling.

Comments

  1. forestrow says:

    Thank you for your reminder – I have been doing what you described above and my portfolio is getting out of control.  I am working on limiting to 20 or so ETFs plus a few stocks and cleaning out those shards. 

  2. I need to do the same where I have a little more control of the situation.

    Lowell

  3. Do not use Safari to access the blog as Safari does not support Flash and my blog software requires it.  Use Explorer, Firefox, or Chrome.

    Lowell

  4. Len Suelter says:

    The point that you make is absolute; I'm sure we all are infected with that problem.   And, I find that those "shards" are the very items that make an emotional attachment and so are very difficult to unwind.  I really appreciate all the pointers to pull me back to earth in this regard.  
     

  5. Len,

    Thanks.  I was writing with myself in mind when I posted this.  I need to do some house cleaning and simplify several portfolios.

    Lowell

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