5 Tips to ‘Spring-Clean’ a Portfolio

Every year at springtime, daffodils bloom, robins hunt for worms and people file their taxes. It’s this last item that’s a reminder to investors that now is also the time to clean their portfolios.

For advisors, spring cleaning means freshening up a client’s portfolio by reviewing goals, taking profits and reallocating assets, says Mark Martiak, a New York-based senior wealth strategist and vice president at Premier Financial Advisors/First Allied Securities. Premier’s securities are offered through the independent broker-dealer First Allied Securities, which was acquired last August by private equity firm Lovell Minick Partners.

”I do this with all my clients,” Martiak told AdvisorOne in a phone interview on Thursday. “Advisors should be proactive and say, ‘OK, here’s your strategic and long-term core, and here’s your tactical and short-term satellite to mitigate volatility and counter market conditions. We want to sell some of the winners if it’s time to take some profits, and perhaps add to some of our losing positions.”

Once Martiak (left) reviews a portfolio for the client’s asset classes, and once liquidity needs are reviewed, he’ll do some rebalancing in the long-term core, and then he’ll take a look at the portfolio’s satellite asset strategy and do some adjusting.

“Spring cleaning is important, but no less important than the fall cleanup,” Martiak said. “The quarterly portfolio reviews are always important, but in this period of coming off the best first quarter since 1998, advisors now have to look very carefully. We didn’t have a lot of volatility in the first quarter, but now volatility has started to creep back up due to economic and market sentiment, so it’s important now to really look at your portfolio and clean it out.”

Read on to read Martiak’s five tips for spring cleaning a portfolio.

1) Get Globally Bonded.

Europe continues to weigh on investors’ minds, but continued ‘disaster-level’ pricing of fixed income doesn’t account for the progress that has been made with the European Central Bank’s policy in addressing sovereign debt, Martiak said.

He recommends buying sovereign debt in European and Asian countries “because U.S. government bonds aren’t doing anything.” While Martiak strongly recommends high-yield U.S. corporate and municipal debt, he believes that global bonds from the U.K., France, Germany, Switzerland and the Netherlands diversify the fixed-income asset class.

“While there’s still the possibility of an ECB slip-up, the nature of the questions being debated in Europe have changed from existential to practical, so the risk and challenges have moved to a more granular level focused on policy and global linkages,” Martiak said.

2) Preserve Wealth Now.

After periods of extended volatility, when investors realize their portfolio hasn’t delivered returns despite the market gyrations, they may want to revisit the idea of employing a tactical allocation strategy that offers the potential to preserve and build wealth, Martiak said.

“It’s not too late to recommend the technology sector to clients who don’t have a technology exposure in their core investment strategy,” he said.

Advisors can do that by rotating some assets out of other sectors in the tactical satellite portion of a client’s portfolio. It could be 80% equities and 20% bonds or 60-40 mix, he believes, “and you have extra money set aside to really react and be proactive in the market.”

3) Look Global, Act Local.