We would like to let you in on a little research we have been doing. It has to do with identifying what matters in creating investment portfolios today. The other side of that is, of course, determining what does not matter, given the dramatic changes in how markets work versus a decade ago.
It is also vital to identify and avoid retirement-killing features of your portfolio. Given the stage of the stock and bond cycles we find ourselves in, they are everywhere. That’s why separating what is valuable from what is not is so critical now. First, a quick background.
One of the biggest changes in the way we invest today is how simplified it all is. Robo-Advisors like Robinhood, Betterment and their peers make it very easy to get started.
They also boil investment success down to a tidy process you can do yourself. Pop your money in an S&P 500 Index Fund, go Rip Van Winkle for 20 years, and wake up to riches beyond your dreams.
Now, for some insights on that research. Our team created a set of 11 “simple” benchmarks. These are not for investment purposes. Rather, they are a baseline for comparing other portfolios to. As an active manager, We don’t plan to invest in them directly. However, they are proving to be an excellent “road test” for some of the ongoing portfolio construction work we do at our place. The crux of if it is this: any portfolio or fund can be compared to an array of basic allocations of stocks and short-term bonds. The mission is not to make it a past performance contest. Rather, it is to map whatever strategy you are using to that array of basic benchmarks. That allows to see the trade off between reward and risk in your portfolio pretty clearly. Armed with that basic, visual knowledge, you can evaluate what parts of your approach are worth the effort, and which can be automated.