Concentrated Stock Positions: The Consequence of Forgetting To Spring Clean a Portfolio

Executive summary:

  • Spring cleaning is essential to a cleaner home, just like rebalancing is essential to keeping an investor on track.
  • When rebalancing hasn’t been done regularly, the portfolio can become unbalanced with potentially large concentrated stock or sector positions.
  • Using Direct Indexing can help whittle down those concentrated holdings while managing the potential tax bill

My wife and I waited until mid-June to get around to our annual Spring Cleaning but are we ever glad we got it done. Spring Cleaning can be a cumbersome task but it’s also an amazing reset.

I started in the garage where I keep my toys, and my wife started in her closet where she keeps her prized possessions – her wardrobe. I was able to get rid of a pair of skis that were 15 years old, and she was able to donate many formal business suits, blazers, and skirts worn daily in her former career in New York. Now working for a tech company in California, her wardrobe is a bit more casual.

Spring Cleaning is a great way to do an inventory check of items that may have treated us well in the past but are no longer necessary or need to be updated. The result for us was a cleaner home and more storage space, which made us feel accomplished and much calmer in our everyday activities and routines.

Spring and summer can also be a great times for an inventory check of your client’s investment portfolios. Diversification is not a new concept for investors and financial advisors. We’ve all heard the phrase “Don’t put all your eggs in one basket.” But in a decade of looking at investment portfolios, I’ve found that is often what investors do. Whether it’s a single concentrated stock position, an overweight to a certain asset class, industry, or geography, investors often end up with a portfolio that’s a little lopsided, which may expose them to more risk than initially intended.