The Investment Scientist

Posts Tagged ‘portfolio management

I had a fun conversation with a prospective client who I lost a few months ago. He actually got me to create an investment plan for him, then he shopped around and found an advisor who charges less.

He then had the gall to call me back and ask whether I think he is paying too much for his new advisor. Here is what he said.

My advisor puts me in low cost ETFs and meets with me every quarter. But otherwise he does nothing with my portfolio, so what exactly do I pay him $15k for?

I know this gentleman has a sizable portfolio, and $15k means a fee of well below 1%. So I told him what I thought.

  1. The fee is very competitive.

  2. The advisor did the right thing by putting his money in low cost EFTs.

  3. Doing nothing with a portfolio is the only right thing to do!

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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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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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