Portfolio School: Put Things Where They Belong

People do the darndest things. For example, they put their investments in places where they don’t belong.

This is a common problem suffered not just by retail investors, but by experienced professionals who are hired to advise them. In each case, there’s a poor understanding about the basic elements of a well-built portfolio. (In extreme cases, there may be knowledge of these basic elements, but an undisciplined framework or a perverted investment philosophy that prevents proper execution.)

(Audio) Portfolio Report Card for BB’s $1.23 Million Portfolio + 3 Rules for Trading Leveraged ETFs

The figure below illustrates the three key elements of an architecturally sound portfolio: An investment portfolio’s core, it’s non-core, and its margin of safety. Together, these three distinct mini-portfolios are the framework for a person’s total portfolio.

Did you notice how each of these three separate portfolio parts deliberately owns non-overlapping assets? Did you also notice how the core portfolio is the largest circle or largest part of a person’s total portfolio?

3 Elements of Well Built Portfolio

When a non-core asset like an individual stock, currency, or collectible is or is permitted to become the largest asset within a person’s investment portfolio, do you know what happens? They’ve misplaced that asset by putting into a place where it shouldn’t be; inside their core portfolio.

The core part of a person’s portfolio is always the largest part of these mini-portfolios and is divided across the five major asset classes: stocks (NYSEARCA:SPY), bonds (NYSEARCA:BOND), real estate (NYSEARCA:ICF), commodities (NYSEARCA:GSG), and cash (Nasdaq:SWMXX).

Finally, the investment vehicles used to track these five core asset classes should be accurate proxies of the asset classes where they invest, broadly diversified, tax-efficient, and low cost.

Ron DeLegge is the Founder and Chief Portfolio Strategist at ETFguide. He’s personally analyzed and graded more than $100 million in investment portfolios using his Portfolio Report Card grading system which helps people to identify the strengths and weaknesses of their IRA, Roth IRA, and 401(k) plan investments.

Follow us on Twitter @ ETFguide

Subscribe To Our Newsletter

Get updates and learn from the best

More To Explore

Social Security Income, 100% Tax Free

June 1, 2023 @ 11am EST | 8 am PDT Worry Free Retirement Plan Webinar Registration link: https://mailchi.mp/etfguide/retirement-planning-webinar-2023 Agenda: Learn proven strategies to maximize your

Tax Free RMDs from your IRA and 401k Plan

June 1, 2023 @ 11am EST | 8 am PDT Worry Free Retirement Plan Webinar Registration link: https://mailchi.mp/etfguide/retirement-planning-webinar-2023 Agenda: Learn proven strategies to maximize your

Do You Want To Boost Your Business?

drop us a line and keep in touch

5 ETFs for Dividend Investors

See how dividend investing with ETFs can improve your bottom line.

ONLY AVAILABLE AT ETFguide