Many domain investors own large portfolios that don't generate enough income from domain parking or sales to cover the portfolio's overall annual renewal bill. This is especially the case with a lot of folks new to the industry. It is a wide-spread misconception that holding a large portfolio is key to success, because it's not quantity but quality that pays.
When acquiring domain names you should not exclusively look for speculative domain investments that may or may not provide a cash flow far into the future, but you will want to build a steady revenue stream as soon as possible. At the very least, it makes sense to invest in domains that can quickly be sold if needed. In general, domains are not as liquid as most other investment opportunities. Stocks are a lot more liquid, for example. Therefore, picking the most liquid investment-type domains helps when holding domains for their speculative name value as opposed to owning revenue domains, which are relatively easy to resell in the secondary market. Because if you owned only illiquid investments, it would be very difficult to get your investment back or exit the market when you want or have to.
But it's also important to have a certain number of traffic domains in your portfolio. You can then use these revenue domains to support your speculative domains (= domains that only have a vague chance of selling for a profit at some point in the future). Traffic domains can also function as the basis for steady cash inflows.
Don't fall in love with your domains, however. If you've been the owner of a domain for, say, five years without having succeeded at selling it, delete it if you can't make any money from it by the expiration date. It sucks to waste ~$50 for the five years of registration, but the registration fees paid in the past are sunk costs. You won't get the money back by continuing to renew crappy domains. Instead, you would be throwing even more money away by renewing domains that are not worth it. So, if a domain doesn't have any value to you, if you can't sell it at a profit and if it doesn't make enough money to cover its annual renewal fees, try to sell it for a lower price and be prepared to let it drop if you can't find a buyer by the expiration date.
For example, if you own a portfolio consisting of 100 .com domains, you're likely to pay around $800 per year for that portfolio. I have seen many domain portfolios of that size and bigger that consist of 99% worthless domain names I wouldn't even register if they were available. And still the owners of those portfolios usually refuse to let even the least valuable domains drop because they don't want to lose the registration fees they have already paid in the past! This doesn't make sense and it happens only if you fall in love with your (objectively worthless) investments.
If domaining is not just a hobby to you but if you want to make money off it, see your domains for what they are: Investments. They are not your babies and you will not hurt them when letting them drop. (I know some domainers out there will disagree with me on this one.)
It's true that accurately evaluating domains is very difficult, because domain values depend on so many factors and they're still a new type of investment. There are no proven methods of appraising domains like there are for real estate, for example. But the longer you have been in the business the better you get at distinguishing good domains from bad ones. This gut feeling is essential for developing your individual domain portfolio strategy.
To sum things up, take a close look at your portfolio and try to spot domains that you do not need and that are unlikely to make you money in the foreseeable future. Then try to somehow squeeze dollars out of those domains before they expire and if you can't, get rid of them. Consider them as sunk costs or a learning experience and move on. Domains are investments and as such they also incorporate a certain amount of risk. Not every investment will yield a positive return, therefore it's important to have an exit strategy in place to get out of those investments where the risk is out of proportion to the expected value. Traffic domains are a good way of building a steady revenue stream. They're expensive to acquire nowadays, but you may be able to find affordable but good traffic domains every now and then. Use them to pay at least a part of the renewal fees of your purely speculative domain investments, that is domains that don't receive traffic but may have some name value. (Another possibility of monetizing otherwise unprofitable domains is to develop them, but I will write about domain development in another article.) Also make sure that the speculative domains you hold are as liquid as possible. That means there must be a market for those domains. Otherwise, they are a very tough sell and may be too risky to keep. You cannot pay your bills with worthless domains, you need regular cash flows that you can depend on when planning ahead and growing your business.