$400,000 portfolio, too many holdings

@Money July 19, 2012: 1:04 PM ET
financial advice stock portfolio

Laura DeLallo and Susan Carson, 36 and 48, Stamford, Conn. DeLallo is an editorial specialist and Carson is principal at an energy firm.

(Money magazine) -- When Susan Carson and Laura DeLallo get interested in something, they pursue it wholeheartedly.

In their twenties, each tried to hit it big in music with their own rock bands (tours and CD releases included). When they wanted steadier jobs, they dived into new fields: Carson works in trading and operations for an energy company; DeLallo, an editorial specialist at a financial services consulting firm, is pursuing her MBA.

Married in 2008, they now have financial security -- they earn $225,000 a year and have almost half a million in savings -- and a new passion: the markets. "We like to read through the news and see if we can find an upcoming trend," Carson says.

Trouble is, their enthusiasm is getting the better of them. Both have sprawling portfolios of individual stocks, exchange-traded funds, and mutual funds that are proving hard to manage -- nearly 50 separate investments in total. "I had a lot more time to pay attention to my investments a year or two ago," says DeLallo.

Moreover, they've seen the downside of market timing: In 2008, believing property values had hit bottom, they bought their house for $508,000. Today the four-bedroom is worth only about $380,000 and also needs some repairs

THE PROBLEM

Carson and DeLallo's zeal for stocks has left their investment portfolio too equity-heavy, says Avon, Conn., financial planner Diann McChesney.

The two women also tend to gravitate toward what's trendy or talked about by CNBC's Jim Cramer. They own gold ETFs, energy companies, and familiar brands such as Lululemon (LULU) and Starbucks (SBUX, Fortune 500), but have little exposure to key assets such as bonds and international equities.

Having many investments means a lot of overlap: They have a big stake in Apple (AAPL, Fortune 500), for example, but also own an ETF in which Apple is the largest holding.

Finally, they have a 12-year age gap. So while the older Carson needs to temper risk, DeLallo still needs high growth.

DELALLO AND CARSON'S FINANCES

Income: $225,000

Assets: $400,000 in retirement savings, $54,000 in cash

Goals: Invest for their age gap; decide whether to sell their home

THE ADVICE

Diversify -- and pare down. Carson and DeLallo are good savers; they both will max out their employers' 401(k) plans this year, and DeLallo has a Roth IRA.

Given that, an overall blend of 60% stocks and 40% bonds should let their savings grow sufficiently to support them in retirement, without as much volatility as their present mix of 77% stocks and 23% bonds and cash, says McChesney.

She also suggests they swap most of their individual stock holdings for funds; they can do so without triggering a big tax bill, since the vast majority of the couple's money is in tax-advantaged retirement accounts.

Minimize performance chasing. Carson and DeLallo don't want to give up researching stocks. "We want to have some room to jump on opportunities when we find them," DeLallo says.

That's fine, McChesney says, as long as they keep stock picks to 10% or less of their portfolio.

Wait out the real estate market -- or not. Home values in Stamford have declined as much as 35% since the top of the market, says Geri Guzinski, a local realtor, and aren't expected to turn around soon.

Since Carson and DeLallo don't have trouble making payments on their mortgage, their best bet is to stay put for now -- or, if the home requires extensive repairs, swallow the loss.

The couple agree. "It's probably too much space for us anyway," Carson says.

FIXING THE COUPLE'S INVESTMENT MIX

Less risk, more diversity: Susan Carson and Laura DeLallo's portfolio has too many large-cap stocks and needs more foreign holdings and bonds.

Portfolio now:

  • U.S. large-cap stocks: 52%
  • International: 9%
  • U. S. small- and mid-cap: 11%
  • Commodities: 5%
  • Bonds and cash: 23%

Suggested portfolio:

  • U.S. large-cap stocks: 15%
  • International: 15%
  • U.S. small and mid-cap: 20%
  • Bonds: 40%
  • Alternative: 10%

SOURCE: Diann McChesney of Asset Strategies

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