I recently finished reading through 150 pages of compliance materials in order to sign my annual attestation. Yes, it’s required. And yes, I read it all. I even wrote some notes to send to the chief compliance officer offering feedback. It was rather exhausting.
Each compliance requirement was enacted with good intentions, but nobody has stopped to look at the big picture for a while. As my wife tells me, if everything is a priority, nothing is a priority. She might be onto something. On the days when I read 50+ pages of compliance, my brain was mush.
The same principle carries over to portfolio construction. I would venture to say that most portfolios are constructed with a cohesive purpose at first. The portfolio ought to change over time, but are changes made in the context of the overall portfolio? Or are you just adding shiny objects to an ever-growing jumbled mess? It’s human nature to gravitate towards the latter.
Here’s an example. The past few years, fund companies have been launching products that offer a less risky stock market experience. They do it in all sorts of different ways. Some use options to hedge. Some buy stocks that are historically less volatile. You can do either or both of those about a dozen different ways. Do you need a dozen different funds like that? Of course not. You might not even need one, depending on what else you have in your portfolio. It’s my job to figure out if any of them fit.
When we’re evaluating new funds, we want to be confident that they are filling in a hole or emphasizing a legitimately different opportunity, not just adding to an ever-growing mess of holdings. In doing so, we are okay passing on interesting opportunities. Interesting doesn’t mean it materially changes your portfolio.
If you look at your holdings and you can’t make sense of them, we’re here to help. We have software to analyze your current positioning, and we can give you ideas for optimizing it in a tax-efficient manner. Reach out if you’re interested.
About the Author: John O’Connor
John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2025. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.