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Here’s why you should take the 6-month portfolio check-up to improve your returns

When was the last time you gave your portfolio a check-up?

Investors should go over each one of their stocks every six months to see how they are performing and how the balance of the whole group is.

You can ask yourself some simple questions like these to guide you through.

1) Are the reasons why you bought the stock still relevant?

We buy stocks based on several justifications. Earnings are improving, the business is expanding, a new fantastic product is coming out, etc. Did the reasons fail to materialise? If the company didn’t do as you expected, then it may be time to dispose of it and put your money towards other winners.

2) Is this stock’s story getting better or worse?

Not all stocks will suddenly become overnight money makers, especially if you bought them for the long term. Even several quarters or half years may be irrelevant to the multi-year earnings growth. Some of your best investments could be of good stocks when they’re in trouble. More importantly, you need to determine whether the company is improving or worsening.

3) Is the portfolio diversified enough?

With each stock addition to the portfolio, we can build in too much dependence on a particular industry. One tech stock may be good, but having four or five may be perilous and could set you up for a wipe out if that industry tanks. Having a good mix of different kinds of companies can offset that risk. This is especially true for cyclical stocks like mining that move up and down in waves for a number of years each way.

Lastly, you want to have both income from dividends and the power of growth stocks for long-term investing success. If up until now you have been focusing on growth stocks to take advantage of big share price gains and are looking for good income stocks, then I would suggest the following two.

Suncorp Group Ltd (ASX: SUN), the insurer and bank, pays a huge 5.9% yield fully franked and has rewarded shareholders with special dividends and capital returns over the past three years. The company is intent on returning capital in excess of its corporate target needs in the coming years as well. Its price-earnings to growth (PEG) ratio is less than one, indicating good growth compared to its share price multiple.

Then, there is also McMillan Shakespeare Limited (ASX: MMS). It does salary packaging and novated vehicle leasing, which is used regularly by company and government staff within their pay packages. It’s successful because it offers a specialised service very much in demand. The stock pays a 5.4% fully franked yield. It also has a PEG ratio less than one, so it’s inexpensive for the forecast double-digit earnings growth expected.

There is one more income stock that could be an even better earner than these two. It has just been named the #1 dividend-paying stock for 2014-2015 by Scott Phillips, the top Motley Fool investment advisor.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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