Whether you’re working with a financial advisor or doing it on your own, it’s important to periodically review your portfolio to make sure it’s still working for you. You’ll want to confirm that your portfolio isn’t just one-size-fits-all, and that you’ve got a multifaceted investment approach designed to withstand a variety of market conditions. At Paceline, we like to categorize investment holdings into three categories based upon their level of attractiveness: Core Holdings, Opportunistic Holdings, and Sale Candidates. Read on to learn about what each type of holding is, and why it’s important to know what you own and why you own it.
Core Holdings
By far the largest category of holdings in your portfolio should be those that support one or more of the overarching goals of your portfolio. Most of these holdings should provide exposure to a particular asset class that makes up part of a portfolio tailored to your needs, such as small-cap growth stocks, corporate bonds, etc.
It could also be a part of your portfolio designed to provide liquidity, which is a stable investment that you can more quickly and easily sell in the event that you need to make planned (or unplanned) withdrawals of cash. Others may be more income-oriented, like bonds and dividend paying stocks, that provide cash if you’re drawing upon your portfolio for living expenses (i.e. those in retirement).
Opportunistic Holdings
These should be a small (but valuable) component of a well-constructed portfolio. Deemed highly attractive, these are most commonly investments that are considered to be unfairly beaten down in price and expected to recover. These can also be described as “seasonal” in that they are not implemented on a regular, recurring timetable. Even though they are not necessarily short-term investments, they are generally added to a portfolio during a relatively short window of opportunity.
Sale Candidates
Investments that are no longer attractive or no longer serve a clear purpose in achieving portfolio goals should be considered Sale Candidates. Investments may no longer be attractive either because the original investment thesis has played out successfully and prices have increased considerably, or because they have performed poorly but do not appear likely to recover.
Sale Candidates may also simply be a poor fit to meet your individual financial goals. Most frequently these are legacy positions purchased a long time ago that have not been closely monitored. Alternatively, if you have inherited a portfolio from a family member, it is highly likely that it was constructed to meet the objectives of someone considerably older and with different financial goals than yourself.
Far too often, these investment holdings remain ignored until something bad happens. (Unless, of course, you’re working with a skilled investment advisor who is trained to be proactive about identifying such complications.)
Staying on Track
The days of trying to get somewhere for the first time without navigation and guidance are over. Wouldn’t you want the same for your most important financial goals? Your money should be working just as hard as you are, and the sooner you have a plan the more time you’ll have to get where you want to be.
If you have questions about the different types of holdings in your portfolio, or if you’d like to learn more about Paceline’s complimentary portfolio review process, please contact us.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.