By Eric Tyson

Q: Can you please explain how I should manage my portfolio through the years? I feel like I should be doing something and that I’d be better off selling some things, but I don’t know what to do.

A: While I advocate doing your homework so that you can buy and hold solid investments for the long haul, there are times when selling is appropriate. In fact, if you’ve been holding investments that seem to be doing poorly over an extended period of time, closely examine the situation.

Try to determine why they’ve done so poorly. If a given investment is down because similar ones are also in decline, then the long-term perspective still holds, and perhaps so should you. However, if there’s something inherently wrong with the investment in question, such as high fees or poor management, take the loss, and make doing so more palatable by remembering two things.

First, if it’s a non-retirement account investment, losses help reduce your income taxes. Second, consider the "opportunity cost" of continuing to keep your money in a lousy investment — what kind of future return could that money be providing you with if you switched into a better investment?

When assessing your current holdings, be careful that you don’t dump a particular investment just because it’s in what will turn out to be a temporary slump. But remember, my definition of "temporary" is one to two years, not months or days.

Just as we get attached to people, places and things, some investors’ judgment may be clouded due to attachment to an investment. Even if an investor makes the decision to sell an investment based on a sound and practical assessment, his or her attachment to it can derail the process, causing the investor to refuse to part with it at the current fair market value. Attachment can be especially problematic and paralyzing with inherited assets. Last but not least, remember to keep bigger-picture issues in mind. Do you have debt that you can pay down?

When purchasing a new investment, many people fail to consider their overall asset allocation. In addition to not having done sufficient homework, investing in this fashion leads to a hodgepodge of a portfolio that’s often not properly diversified.

Wanting to be a loyal team player, other folks fail to consider the big picture and over-invest in employer stock. This strategy is particularly dangerous because a company that falls on hard times can not only lead to the loss of a job, but also the loss of retirement assets when the stock takes a permanent nosedive. Investing more than 10 percent of your financial assets in your employer’s stock may be too risky.

Write Eric Tyson, author of "Investing for Dummies" and "Personal Finance for Dummies," at eric@erictyson.com.

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