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Tags: portfolio | invest | money | stocks

Get Your Portfolio Lean in 2017

Get Your Portfolio Lean in 2017


By    |   Thursday, 19 January 2017 03:26 PM EST

We’re now more than halfway past January. That’s when about 90 percent of people who made a New Year’s Resolution just over two weeks ago have given up. I’m not surprised that happens to most people. All that enthusiasm and hard work—whatever your goal—just won’t result in a tangible change in two weeks. It takes at least a month to start forming a habit, and if you don’t make a conscious effort to work at it, a habit simply won’t form.

But as the year unfolds, there is something you can do as an investor to help improve your focus and investment returns. It’s something that can become a habit without the hard work of a resolution. I’m talking about getting lean. I don’t mean losing some of that holiday weight with a daily trip to the gym (diet is better than exercise there). I do mean reducing the number of positions you have in your portfolio.

Why? As with other things in your life, clutter accumulates. Things get messy. That’s why there’s a benefit to simplification. Consider your best returns in the past year. Wouldn’t your overall portfolio returns have been better if you had more invested more in that top idea rather than overly spread your capital around? Of course! We’re not talking about reinventing the investment wheel here—just making sure that we stay focused on what really matters.

So where should you start? As an investor, one of the most important things to get correct is your asset allocation. Stocks will likely have a solid year. Bonds will likely have a tough one, especially if interest rates rise faster than thought. That’s not to say this is the year the bond market cracks; there’s still plenty of places to invest in fixed-income with a nice discount to par. Commodities could be a wild card, but the outlook is slightly bullish there as well, particularly if inflation expectations pick up too.

Taking all those factors in mind, part of a leaner, cleaned-up portfolio includes reducing an overexposure to the wrong assets and increasing your exposure to the right ones.

While that sounds fine in theory, making your portfolio lean might mean different things in different places. For retirement accounts, where you can’t touch the money for years or decades away, shifting from many positions to just a handful of broad-based ETFs can improve your returns while keeping things simple and investment returns down. And if it’s the long-term, your best bet is with stocks. A 70 percent allocation of your retirement money in stocks, and 30 percent in bonds, gives you most of the long-term upside of investing in stocks with a safe cushion for the market’s periodic pullbacks along the way.

For a more traditional investment account, it also means focusing on stocks with the best value, and increasing your exposure. If there’s one thing that separates professional investors like Warren Buffett, Peter Lynch, or Carl Icahn from others, it’s their willingness to put a large amount of their net worth into a single trade.

While it might sound risky—the proverbial eggs in a single basket—if it’s the right basket, it will work out over time. Again, you don’t need to do anything too crazy. Figure out what you want to own as “core” investments and then increase your holdings there. How many positions should you have here? 5 to 10 at the most. When I first started investing, I had just two individual stocks—but it’s grown to over 15 today. I’ll be doing some culling as the year unfolds to better focus on where I expect the best returns over the coming decades.

Anything you think of as just a trade or too small or too complicated should be cashed out to add to these core positions. As the old saying goes, anything that’s worth doing is worth doing well. Overly diversifying your portfolio and accumulating a series of small trades, just keeps your investments too unfocused to do as well as they can.

For many, that might not be a challenge. But for the more trading-oriented folks like myself, it’s more of a challenge. I’m working to reduce the number of options trades I make in a year. Instead, I’ll be putting more into each trade. I’ve made more money trading options on a company whose ups and downs I understand like Apple (AAPL) than making options trades on the 10 or 20 stocks that look like a bargain during an earnings-season selloff. You undoubtedly have a few stocks that you like enough to follow like a hawk chasing its prey—so focus on that opportunity more, and on other opportunities less.

Once you get a more concentrated portfolio, ensure that it’s doing its best to provide you with great returns. For core trades, that might mean using more call option writing to get extra income out of a trade. Since a core trade shouldn’t be too volatile and should already pay an income, in slow years this strategy could double what you’re getting in dividends.

Even better, since you decide in advance what the strike price will be—and where you’ll get called away on a position-- it means you already know when you’re going to be selling rather than deal with a market panic. That’s an additional win, as selecting a sell point when markets are calm takes a ton of stress out of investing.

Bottom line: make 2017 work for you. Figure out what’s been working best for you, if you haven’t yet, and make that the core positions that should make up the bulk of your portfolio. Consider the overall market and where the best returns are likely to be and adjust your weighting appropriately. And you don’t have to give up all the speculation that makes investing both profitable and fun—just keep it appropriate to ensure that your portfolio continues to increase in value, not decrease.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and is managing editor of Financial Intelligence Report.

© 2023 Newsmax Finance. All rights reserved.

We're now more than halfway past January. That's when about 90 percent of people who made a New Year's Resolution just over two weeks ago have given up.
portfolio, invest, money, stocks
Thursday, 19 January 2017 03:26 PM
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