The Investment Scientist

Why You Want a Simpler Portfolio

Posted on: July 22, 2013

investment-portfolio

When I write a blog post, I like to drive home one and only one point at a time.

In my last blog post, the point I wanted to make was that cost matters. In case you didn’t notice, not only did I reduced my new client’s cost by 85 basis points, I also reduced the number of funds in her portfolio from 39 to 4.

With such a small numbers of funds, is the portfolio diverse enough?

Emphatically yes. In fact, it is much more diversified than the previous portfolio of 39 actively managed funds.

What I use are asset class funds; DFQTX holds all 5000+ stocks traded in the US equity market; DFTWX holds all foreign stocks; DFGEX holds all domestic and foreign REITs and of course VBTIX holds all bonds. With these four portfolios, you are holding all of the world’s productive assets. How much more diversified can you get?

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What are the benefits of such a portfolio?

Safety and Security

My client is no longer betting his retirement on his financial advisor’s ability to pick stocks or funds – which is a dicey bet – he is holding all the world’s productive assets instead. As long as humanity exists, these productive assets are needed, and they will continue to produce returns for my client.

Clarity

With the original 39 fund portfolio, my client had no idea what each fund manager was doing with his money, how much of his portfolio was in stocks, how much in bonds. With the 4 fund portfolio, that confusion is eliminated once and for all.

Environmentally Friendly

OK, this is tongue in cheek, but that does not make it less valid. With the 4 fund portfolio, the monthly statement is only one page long! With the 39 fund portfolio, 10 times more trees have to die to produce a statement that is too long for my client to read.

Peace of Mind

Getting a monthly statement as thick as an encyclopedia and not knowing where your money is going until you’ve finished reading it, can be seriously distressing. Now imagine yourself reading a one page statement with only 4 funds on it. Feel the difference?

Now, don’t you think you deserve to have a simpler portfolio that gives you clarity, security and peace of mind? If so, drop me a line!

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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