Decluttering the investment portfolio
BY KATHY KRISTOF Money Power
Sunday, December 09, 2012
12/09/12 at 7:06 AM
Does your portfolio look a bit like your junk drawer, with all sorts of odds and ends that don't seem to fit with anything else? Then it's time to declutter your portfolio, making it smart, simple and easy to manage.
First figure out what you have. The simplest way to do that is to pull out a notebook and make a grid to show the name of each stock, bond or fund you own and the amount you have invested in it.
With funds, you'll also want to note the fees they charge and where they fit on a style grid. That is, do they invest in the stocks of large, undervalued companies or small, fast-growing ones? Finally, note whether you've got a gain or loss in the holding.
An easy way to research the funds is to go to Morningstar.com. Just plug in each fund's symbol and click on "portfolio."
When you've gone through your portfolio, add up the assets by category. What percentage of your assets is in, say, stocks of big U.S. firms? What percentage is in foreign stocks, bonds, real estate and so on? How does this reality compare with what you want to own?
Your final move is to consolidate and shift assets into a handful of investments to reflect your goals.
All of this shifting will have no impact on what you owe Uncle Sam if it's done inside a tax-deferred account. But if some of your investments are in taxable accounts, decluttering could trigger a tax bite. Selling generates capital losses or gains, so this is where you should refer back to your notations of profit and loss on each holding.
Shift assets by matching those that have gains with those that have losses. If you have more losses than gains, you can use the excess losses to offset gains in future years. But if your investments are all in the black, you'll want to see just how big the tax bill might be if you sell.
If the tax hit looks onerous, you have two options: Restructure slowly, over the course of a few years, so you never push yourself into a higher tax bracket or get hit with the alternative minimum tax. Or you can hold on to your most profitable investment and structure the rest of your portfolio around that, so you won't have to sell the security that's likely to generate the biggest taxable gain.
Original Print Headline: Decluttering your portfolio
Kathy Kristof is a contributing editor Kiplinger's Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback