At least once a week, I run across the sort of portfolio I like to call a “broker’s special.” While each is different, they typically include some mix of the following:

• A handful of mutual funds with names like “New Economy” or “New Discovery” or “New Perspectives”.
• Some commodity funds.
• Ten or twenty individual stocks.
• Funds with names heavy on buzzwords such as “Infrastructure” or “Renewable Energy”.
• And, in some cases, master limited partnerships, options or other derivatives.

In all, there might be 25, 50 or more separate holdings.

What’s wrong with a portfolio like this?

In addition to the obvious drawbacks—unpredictable performance, unnecessary cost and tax-inefficiency—perhaps the biggest issue is that these broker’s special portfolios are so larded up with complexity that it’s virtually impossible for an investor to know what they own. To be sure, account statements will list each of the holdings, but that’s of little help when the list is an arm’s length long. What gets obscured is the most basic fact: the portfolio’s overall asset allocation—that is, its breakdown between stocks, bonds, cash, commodities and other holdings.

This is a critical shortcoming because, according to the research, asset allocation is the single biggest driver of a portfolio’s risk level and expected returns. If you don’t know your asset allocation, you have no idea whether your finances are walking a high wire or resting on solid ground.

If you feel like your portfolio could benefit from some spring cleaning, I recommend these four steps:

Step 1: Productivity guru Stephen Covey used to talk about “beginning with the end in mind.” Using that approach, the first step in transforming your portfolio is to develop an ideal image of what you want it to look like. By this, I mean you should determine the asset allocation that makes sense for each account or group of accounts. For example, you might have one allocation for your retirement accounts, another for your taxable accounts and one for each of your children’s college savings accounts.

Step 2: Now that you have your ideal mapped out for each account, you’ll want to compare each account’s current state to its ideal. To accomplish this, I recommend a tool like Morningstar’s Portfolio X-Ray—which is available with a free registration on their website.

Step 3: As noted earlier, the most important factor driving the performance of a portfolio—and its risk level—is asset allocation. It matters much less whether you own stock in Google or in Apple; what matters much more is whether you own a basket of stocks, a basket of government bonds, or something else. That said, you still want to vet each individual holding to be sure you’re not holding any ticking time bombs. I recall, for instance, one portfolio held by an elderly couple. On the surface, it looked appropriate, with the bulk of their holdings in bonds. Upon closer examination, however, I saw that it was far more risky than it appeared, with bonds from corporate and government issuers that had both spent time in bankruptcy.

Step 4: A well-worn rule of thumb in asset management dictates that investors should—to the greatest extent possible—hold bonds in retirement accounts and stocks in taxable accounts. The idea is to optimize tax efficiency, since bond interest and stock dividends are, for most people, taxed at different rates. But times have changed. With bond yields so low, I think you can set aside this rule of thumb for now. Instead, I’d let your age and stage drive this decision. Young people, for example, might want to have more bonds in their taxable accounts, where they would be accessible to meet unexpected expenses. Older folks, on the other hand, might want to have more bonds in their retirement accounts, to help meet required minimum distributions.

So when should you start? If you’ve evaluated your portfolio and decided it would benefit from some change, I would go ahead and do it. There may be a temptation to wait, based on your—or others’—opinion of where the market is headed. But in my view, this rarely works out. Consider, for instance, the market-timing advice offered recently by retired Goldman Sachs CEO Lloyd Blankfein: “There’s an old adage,” he wrote. “Don’t fight the Fed. Means that if the Fed is on a tightening course [i.e., raising rates], don’t be long [buying stocks]. And if the Fed is lowering rates, as now, don’t be short [selling stocks].” He issued this advice in late 2019. At the time, the Fed had been lowering rates, and stocks were indeed doing well, seemingly confirming Blankfein’s advice—except for one detail. About a year prior, in late-2018, the Fed had been doing the opposite: They had been in the midst of a multi-year course of raising rates, and stocks were struggling. But then the Fed abruptly reversed course in 2019.

That’s the problem with “old adages” like this. If you had been following Blankfein’s logic in 2018, you would have been scared out of the stock market and would have missed the market’s 30% gain in 2019. The lesson: If your portfolio feels like a broker’s special, the best time to start making changes is now. Don’t delay—and certainly don’t base your decisions on old adages.