Just like cleaning out your closet after a long winter, maintaining the health of your investment portfolio requires getting rid of things that no longer serve you and adding more of what does.
Divesting, also known as the “spring cleaning” of portfolios and companies, involves selling assets that no longer align with your financial or ethical goals.
When to Consider Divesting
There are several reasons why you might consider divesting certain assets from your portfolio:
- To rebalance your portfolio: Diversification is key to avoid concentration risk and ensure a well-rounded portfolio.
- To strategize taxes more efficiently: Utilizing strategies like tax-loss harvesting can help offset capital gains taxes.
- To adjust your investment strategy: Tweaking your strategy to align with changing goals or time horizons.
- To align with your beliefs: Removing companies from your portfolio that do not align with your values, such as those involved in fossil fuels.
What Divesting Might Look Like for You
Divesting is not a one-size-fits-all approach. Consider these scenarios where divesting may be beneficial:
- Retirement is on the horizon: Transitioning from volatile holdings to more stable investments like bonds.
- Retirement isn’t on the horizon: Moving from conservative investments to higher-risk options like stocks.
- You want to diversify your portfolio: Shifting from single stocks to diversified funds to spread risk.
- Your investing values change: Investing in companies that align with your values, such as gender equity-focused funds.
4 Steps to Divest Assets
When deciding to divest assets, follow these steps:
- Consider individual goals, risk tolerance, and time horizon: Align changes with your long-term goals and risk preferences.
- Assess the market: Understand market conditions and factors impacting your assets.
- Pick a strategy and sell: Sell assets that no longer align with your investment strategy.
- Monitor performance: Keep track of how changes impact your portfolio’s performance and adjust accordingly.
Bottom Line
Divesting allows investors to realign their portfolios with their evolving needs and goals. Before making any changes, consider whether divesting makes sense for your financial future.
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