facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
The Complete Guide to Conducting A Portfolio Makeover Thumbnail

The Complete Guide to Conducting A Portfolio Makeover

So you want to give your retirement portfolio a makeover? That's an excellent idea! Over time, portfolios can become cluttered and drift away from their original purpose. Conducting a thorough review and makeover allows you to streamline your investments, reduce risk, improve returns, and ensure your portfolio aligns with your financial goals.

Whether you're just starting your investment journey or close to retirement, a portfolio review is a valuable exercise. Don't worry - with some time and focus, you can easily overhaul your portfolio on your own. Just follow these steps:

Key Takeaways

Conducting a portfolio makeover allows you to streamline your investments, reduce risk, improve returns, and ensure your money aligns with your financial goals. Follow these best practices:

  • Gather all your account statements in one place for a total picture of your finances
  • Review if you're on track for retirement and other goals
  • Set proper asset allocation targets for your age and risk tolerance
  • Consolidate accounts and holdings for simplicity
  • Use tax-advantaged accounts wisely to maximize returns
  • Stress test your plan with different market scenarios
  • Automate processes like contributions and rebalancing
  • Regularly review performance and rebalance
  • Update beneficiaries on all accounts to protect your legacy

Investment management is crucial in ensuring a comfortable retirement. As you embark on giving your retirement portfolio a makeover, remember that effective investment management is about more than just picking the right assets. It involves regular reviews and adjustments to align with changing market conditions and personal financial goals. This proactive approach helps in mitigating risks and enhancing the potential for healthy returns, ensuring that your retirement savings are not only preserved but also grow over time.

Step 1: Gather Your Investment Documents

The first step is gathering all your current investment statements, either on paper or online. This includes:

  • Latest statements for all investment and retirement accounts
  • Social Security statements
  • Pension documents
  • Annuity contracts
  • Any other financial assets

Compiling all relevant financial documents is a crucial step in gaining a comprehensive understanding of your current financial situation. This includes gathering bank statements, investment accounts, recent utility bills, credit card statements, loan documents, and any other financial records. Having these documents in one place simplifies the process of reviewing your finances.

Additionally, creating a balance sheet before beginning a financial review is highly recommended. A balance sheet is a financial statement that summarizes your assets (what you own), liabilities (what you owe), and equity at a specific point in time. This provides a snapshot of your financial health and helps in tracking your progress over time.

If you don't have online access to certain accounts, contact the financial institution to set it up. This will allow you to easily check your balances and holdings anytime. It is essential for everyone to establish a "My Social Security" account, as it provides a comprehensive summary of your benefits and earnings history. This becomes particularly vital as you approach retirement, necessitating careful planning regarding the size and timing of your benefits.

Step 2: Review Your Overall Financial Health

With all your documents assembled, it's time to review the big picture. Ask yourself these key questions:

Am I on track to reach my financial goals?

If you're still building your retirement nest egg, calculate your current retirement savings rate across all accounts. A good baseline is 15% of your gross income, but aim for 20% or more if possible.

Use a retirement calculator to see if your current savings will provide the income you'll need in retirement. Shortfall? You may need to ramp up contributions or delay retirement.

For those nearing or in retirement, calculate your withdrawal rate - planned annual withdrawals divided by total portfolio value. Is it 5.4% or less? However, there is ongoing discussion about what constitutes an optimal withdrawal rate. To adopt a cautious approach, consider starting with a smaller withdrawal amount. For those yet to retire, contemplate whether a reduced withdrawal, supplemented by income from additional sources, will adequately meet your financial needs.

In our firm, we employ a strategy known as a dynamic distribution rate. This approach allows for flexibility in withdrawal rates based on various factors, ensuring that our financial planning adapts to changing circumstances and needs.

How much liquid cash do I have?

Review your checking, savings and money market balances. Retirees should have 6-24 months of living expenses in cash; workers need 3-6 months' worth. Cash reserves prevent the need to sell investments during market downturns.

How diversified is my asset allocation?

Diversification is key to manage risk. Use Morningstar's Portfolio tool to check your mix of stocks, bonds and cash against target date funds or model portfolios. If you're near retirement, make sure you're not overly weighted in stocks.

What funds or individual stocks do I own?

Compile a list of all your holdings across each account. Identify underperformers rated 2-stars or less by Morningstar. Consider selling dogs in your tax-advantaged accounts and replacing them with broadly diversified index funds. This strategy is referred to as tax loss harvesting.

Step 3: Set Your Asset Allocation Targets

Once your current situation is clear, it's time to set target asset allocation based on your risk tolerance, time horizon and financial goals. This mixes asset classes to balance risk versus return. Here are sample starting points:

Based on your current life stage and your preferred level of risk tolerance, it's advisable to tailor your asset allocation accordingly. Here are some suggested asset allocation:

In your 20s 90% stocks, 10% bonds
In your 30s 90% stocks, 10% bonds
In your 40s 90% stocks, 10% bonds
In your 50s 75% stocks, 25% bonds
In retirement 65% stocks, 35% bonds

Adjust these based on your personal situation. More aggressive? Add stocks. Conservative? Increase bonds. Don't forget alternative assets like real estate for further diversification. In retirement, it's crucial to set a target asset allocation and make yearly adjustments to ensure it aligns with your financial goals, risk tolerance, and investment horizon. This proactive approach helps in managing risk and optimizing your portfolio's performance over time.

Step 4: Consolidate Accounts and Holdings

With fresh targets set, it's time to streamline. Consolidating accounts and holdings makes portfolio management easier.

Consolidate Accounts

Do you have multiple 401(k)s or IRAs from old jobs? Roll them over into a single IRA for simplicity. Try to avoid having more than one taxable brokerage account going into retirement. 

Consolidating multiple retirement accounts into a single IRA simplifies the management of Required Minimum Distributions (RMDs), investment oversight, and retirement plan distributions. This approach ensures accurate and hassle-free RMD calculations and compliance, provides a clear view of asset allocation for better alignment with retirement goals, and streamlines access to funds, contributing to a more stress-free retirement experience.

Consolidate Holdings

Owning too many funds or stocks creates complications. Prioritize low-cost, diversified index funds that give you exposure to entire markets with minimal maintenance.

Use broadly diversified funds like target date funds or balanced funds as core portfolio holdings, then supplement with more specialized funds if desired. But stick to 12 or fewer funds total.

For stocks, build a portfolio of 25-30 quality stocks across sectors and industries. Avoid overlap. Index funds can supplement your stock portfolio with low-cost, passive exposure.

Step 5: Review your cash reserve

In addition to reviewing your portfolio's long-term asset allocation, it's important to check on your liquid reserves when doing a portfolio review. While other assets may offer higher returns, don't underestimate the role cash plays in your portfolio. Maintaining adequate cash reserves ensures you don't have to tap investments or resort to unattractive financing like credit cards to get through tough times.

For retirees, I recommend keeping 12 months to 2 years worth of portfolio withdrawals in cash. These liquid reserves provide a spending cushion if stocks decline or bonds underperform. Retirees with equity-heavy portfolios can use rebalancing to replenish cash reserves.

For those still working, 3-6 months of living expenses in cash is a reasonable starting point for right-sizing liquid reserves. Contractors, older workers, and those with specialized, higher-paying careers should target closer to a year's worth of reserves.

Step 6: Stress Test Your Plan

Congratulations! With your streamlined, realigned portfolio in place, it's time to stress test the plan. When planning for retirement, conducting stress tests on your investment portfolio and withdrawal strategy is a prudent step. While we can't predict future market returns and economic conditions with certainty, stress testing allows you to model various adverse scenarios to gauge the resiliency of your retirement plan.

Build projections with a few different scenarios to see how your portfolio would fare:

  • Review stress testing results annually. Markets and economic conditions change over time, so it's good to rerun the scenarios every year or two.
  • Evaluate stress testing assumptions. Make sure the scenarios you are modeling are realistic and rigorous enough to truly stress test your plan.
  • Consider worst-case scenarios. Thinking through how you would adjust if an extreme crash or prolonged downturn hit can guide contingency planning.
  • Don't overreact to failures. Tweaks may get your plan back on track rather than anything drastic. Stay disciplined.
  • Rebalance after testing. If stress testing uncovers asset allocation drift, rebalance back to target levels.
  • Discuss results with your advisor. Your advisor can provide an objective view and additional scenarios to consider.
  • Use stress tests to set risk limits. Let the scenarios guide your risk tolerance and asset allocation decisions.
  • Maintain liquidity and cash reserves. Having options and not being forced to sell improves resilience.

While no one can predict future downturns, sensible stress testing can identify risks and guide adjustments. The end goal is a plan positioned to withstand real-world volatility and setbacks.

Step 7: Optimize for tax Effectiveness

When considering adjustments to your portfolio, it's essential to pay attention to both tax implications and transaction costs. This includes understanding the importance of asset location, which involves strategically placing your investments in the most tax-efficient accounts.

Selling Assets in Tax-Advantaged Accounts: To minimize immediate tax consequences, focus on selling or adjusting assets within tax-advantaged accounts, such as IRAs or 401(k)s, where changes won't trigger taxes or transaction fees.

Handling Taxable Accounts with Care: For investments in taxable accounts, carefully review the potential tax impact of any trades. If you identify areas needing changes, consider consulting with a tax advisor before executing trades. Remember, the goal is to manage these accounts to maximize tax efficiency.

Incorporating Asset Location Strategy: Asset location is a crucial aspect of portfolio management. It involves placing assets in the most suitable types of accounts based on their tax treatment. For example:

  • High-growth potential investments (like stocks or equity ETFs) can be more tax-efficient in tax-deferred or tax-free accounts (like IRAs or Roth IRAs), where their growth accrues without immediate tax impact.
  • Income-generating investments (like bonds or dividend-paying stocks) may be better suited for tax-advantaged accounts to defer or reduce tax liabilities on their yields.

Tax-Efficient Contributions and Withdrawals:

  • Ensure that you're making the most of tax-sheltered retirement accounts by prioritizing contributions to these vehicles.
  • In taxable accounts, consider holding more tax-efficient investments, such as equity ETFs or municipal bonds/funds, to reduce taxable income.
  • If you're in the withdrawal phase of retirement, strategically sequence withdrawals to optimize for tax efficiency. Typically, this means drawing first from taxable accounts, then tax-deferred accounts, and lastly from tax-free accounts.

The key is to evaluate tax efficiency holistically across your entire portfolio when considering any changes. Consulting with a tax advisor can provide guidance on maximizing after-tax returns.

Step 8: Update Your Beneficiaries

This final step is easy to overlook but incredibly important. With your accounts consolidated, double check all your listed beneficiaries and make any needed updates.

Ensuring your assets are distributed properly upon your death is a key aspect of estate planning. Take time to carefully consider who you want to receive your assets and in what proportions. Common beneficiaries include:

  • Spouse - They may rely on your assets in retirement. Married couples often name each other as primary beneficiaries.
  • Children - Consider whether assets should be divided evenly or allocated based on need. You may designate percentages for each child.
  • Other family - Parents, siblings, etc. can be named as primary or contingent beneficiaries.
  • Friends or charities - You may want some assets directed to causes you care about.
  • Trusts - Assets can be directed to a trust you establish for purposes like caring for minor children.

Make sure your intentions are clearly captured for each account. Confirm primary and contingent beneficiaries on retirement accounts, life insurance policies, annuities, and transfer on death accounts. Update beneficiary forms as needed.

Keeping beneficiary designations up-to-date avoids potential legal issues if an ex-spouse or deceased person is still listed. This quick step gives you peace of mind knowing your assets will go where you want upon your death. File the completed forms with your other estate planning documents.

Frequently Asked Questions

How often should I review my portfolio?

Aim to conduct a thorough review at least annually or anytime you experience a major life change like a marriage, divorce, new child, or career move. You should also review quarterly to check performance and rebalance if holdings drift 5% or more from targets.

When should I rebalance my portfolio?

Rebalance when an asset class moves 5% or more above or below your target allocation. For example, if stocks were supposed to be 60% but have grown to 65%, it's time to rebalance by selling stocks and buying more bonds and cash to get back to the 60% target.

What returns should I expect from my portfolio?

Returns vary wildly based on your asset allocation and market performance. A moderate portfolio of 50% stocks and 50% bonds historically returns around 6% annually, on average. Conservative portfolios of 20% stocks see closer to 4% annual returns. Aggressive portfolios can see 8%+ returns but with higher volatility.

How do I pick the right funds and stocks?

Focus on low-cost, diversified index funds as the core portfolio holdings, supplemented by actively managed funds rated Bronze or higher by Morningstar analysts. For stocks, choose quality companies with competitive advantages, strong management, and reasonable valuations. Diversify across sectors and market caps.


Conducting regular portfolio makeovers is a valuable exercise for retirement investors. By taking the time to gather your documents, review your current situation, set targets, consolidate holdings, maximize tax efficiency, stress test your plan, and automate maintenance, you can transform your investments into a streamlined, high-performing portfolio.

The result will be reduced stress and the confidence that your money is structured optimally to help you achieve your financial goals. With some focus and discipline, any investor can overhaul their portfolio on their own.

👉 If you would like to get a FREE retirement assessment, click here to schedule your 20-minute call to start the retirement assessment process.

// new code add in home