While you should keep emotion out of investing, sometimes you need to take a harder look at what you’ve bought over the years and update your investment strategy. Here’s an idea for tidying up using Marie Kondo method (KonMari) on your investment portfolio.
I’ll admit this potentially sounds unusual, but some of the best innovations have come from taking what works well in one industry and applying it to the something completely different. A few years ago when I decided to change up my investment strategy, I realized I need to let go a few of a few investments that were hanging around in my portfolio. I essentially applied the KonMari method as I cleaned up my investment holdings.
I should note before going further that I am not an investment professional. Before you make any decisions, you should consider consulting a professional. Below I’m talking about a few ideas I applied to my own situation, which may not match yours.
Who is Marie Kondo and what is KonMari method
Marie Kondo is a Japanese organizing consultant and author known for the KonMari method. The KonMari method is based on gathering all of one’s belongings together, going through each category one at a time, and keeping only the things that “spark joy”.
The KonMari Method includes the following steps:
- Commit yourself to tidying up
- Imagine your ideal lifestyle
- Finish discarding first
- Tidy by category
- Follow the right order
- Ask yourself if it sparks joy
How to apply the KonMari method to your investment portfolio
You may not apply the KonMari method exactly while cleaning up your investment portfolio, it can help provide a framework for the task. If you’re like me, a DIY long-term buy-and-hold investor, you may have lingering investments that you should have sold awhile ago. Now’s the time to take a closer look at what you have, and build a plan to clean it up.
1. Commit to improving your portfolio.
Put yourself into the mindset that you need to look through your entire portfolio, and figure out what you currently own. You may have investments in multiple accounts, at multiple brokerage companies. During the year looking at an individual investment and making a decision is easy. When was the last time you looked at everything together?
2. Define your investing goals and strategy.
What’s your approach to investing? For each person this will be different. My personal strategy focuses on long-term dividend investing to use as income replacement in the future. Others look at dividend growth or make decisions based on percent increase or decrease. You need to consider your investing goal and your strategy to get there.
3. Decide the investments that no longer fit your strategy. Create your plan to discard them.
First look for the investments that no longer fit your future strategy. For example if you’re a dividend investor, but still have stocks that don’t pay dividends, maybe it’s time to sell them.
Create a plan to sell (discard) them. It’s usually easier said than done to simply sell immediately. The first step at least is making the decision to sell.
In my case, I had a few investments that did not pay dividends. In one case I held it long enough to have a nice (long term) capital gain. I wanted to buy something with that money that better fit with my strategy.
4. Review each investment, and decide it should remain in your portfolio.
For the investments that fit your strategy, it may still be time to part some of them. Is it struggling on the returns? Or take a look at the investments that are doing really well. Should you trim down the holding to reduce your risk? Or if an investment has been running at a loss for a while, maybe it’s time to that let that one go.
I first started investing when I turned 18 and purchased a few shares of different companies. I hung onto them for years thinking they would at least break even. I had the same problem with a mutual fund that stayed stuck at the same value for years. I finally gave up and let them go.
5. Review your investments by category.
A balanced portfolio helps mitigate risk. So as part of your review process make sure to look at what you’re holding by industry, or investment type (stock, bond, etc). Work your way through everything to make sure you’re balanced. Maybe it’s time to sell in one area so that you can buy in a different.
6. Skip sparking joy. Does it fit with your goals?
Does the investment “spark joy”? Sparking joy is a stretch when it comes to investing as you really need to keep emotion out of the decisions.
Instead consider if the investment feels like it’s going to help you reach your goals. While you may have some sentimental attachments to some of these, it may be time to let it go if it’s not going to help you reach your future state.
For example I joke that you’ll have to pry my “bank stock” out of my claws. At the risk of jinxing it, it’s served my portfolio well for more than 30 years, and continues to fit with my strategy. For other holdings that I’m on the fence about if they’re really the right fit for my future strategy it may be time to sell them and use the money elsewhere.
One important note before you “discard” your investments (or accounts)…
You likely already have thought about this, but as a reminder, selling any investment may have tax or fee considerations. As part of planning what to do with the investments you decided to “discard”, make sure you understand all the potential impacts.
Selling an investment will likely have a capital gain or loss. That means extra paperwork at tax time, and potentially extra taxes. That shouldn’t necessarily stop you from going ahead, just make sure it’s part of your decision process. Ultimately may you need reconsider selling the investment, at least in the near term.
Or maybe you should wait to sell an investment until the next dividend pays out. Double check the calendar just in case.
If you decide to reorganize your accounts to consolidate your investments, there may be fees involved. In some cases it’s easier to sell the investment and take the cash rather than paying transfer fees. Make sure you understand your options as part of planning the “tidying” process.
Ultimately you will need to create a plan because unlike cleaning your house, you usually can’t simply take out the trash the minute you’re done.
Over to you. What you do you think about applying the Marie Kondo method to your investment portfolio?
Ok, I’ll admit that it feels a little out of the box and a stretch, but for the DIY long-term investor, sometimes it’s helpful to take a step back and look at everything in total.
My thoughts about applying the KonMari method was more about going into a mindset of taking a hard look at your investments, making decisions, and building a plan of action to help guide your portfolio towards your goal and strategy.
And sometimes we have to admit that we hang onto things in our portfolios longer than we should. It’s time take action and take a harder look at how our investments are matching up with our goals and strategies.
While we’re not applying the Marie Kondo’s method exactly, we can adapt it to help with managing our investment portfolios.
Have you tried something similar? Or what steps have you done to reevaluate your investment portfolio?
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