What does the perfect portfolio look like – spoiler alert – it doesn’t exist (unless you have a crystal ball).
What that leaves us with is the ability to create less-than-perfect portfolios that will do their best to help us reach our long-term goals. While perfect isn’t possible, ideal is.
Here are five important factors to consider when constructing your ideal portfolio.
This should be the whole list, repeated five times. You can’t control the market, but you can control the fees you pay to access it. With the prevalence of low-expense ratio ETFs on the market, you can now build a globally diversified stock/bond portfolio using as few as two ETFs (VT & BSV) that has an annual cost of 0.06% ($6 per $10,000 invested). We are currently living in the golden age of low fees. Be sure to also review your advisory fee, which can be MANY multiples higher than the ETFs you hold.
This is a fancy word for betting on everything. When people ask me “what is my favorite stock” my answer is “all of them.” Why? Because concentrating your investments in a handful of securities is a great way to minimize (not maximize) your ability to live your ideal life. There is a reason Warren Buffett is famous – because very few have been able to do what he does.
Now that we got those first two out of the way, let’s discuss concentration risk. Do you own your own firm, work in a volatile industry, or are compensated with RSUs/NSOs/ISOs? If so, it is vital to take these into account and develop a plan of action to reduce that concentration over time.
What type of accounts do you have? Traditional IRAs, Roth IRAs, taxable brokerage accounts? What assets you own and in which accounts can impact your total wealth significantly due to the tax treatment based on the account wrapper. While this can add complexity to your overall ability to maintain a specific investment allocation, it is an important consideration.
What’s right for me isn't necessarily right for you. The MOST important part of portfolio construction is to make sure you can stick with the plan. Sticking with the plan gets more difficult to monitor, manage, and maintain as you add components, be it a value tilt, small cap stocks, or alternative investments.
Want to learn more about building your ideal portfolio? Schedule a call with us.
This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.
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