Since mid-May, I along with a growing army of independent
portfolio analysts, have already graded $10.6 million in investment
portfolios. Some of the individual investors are old, some are
young. Some have years of investment experience and others are
novices. Some are risk averse, while others are not.
I've analyzed 401(k) plans, traditional IRAs, Roth IRAs,
403(b) retirement plans, 529 college savings plans, UGMA accounts,
family trust accounts, and anything posing as an "investment."
Regardless of how large or small the account size, there's a
common denominator among individual investors with disorderly
portfolios. What are they?
Sign 1: Too Many Investment Accounts Located
There's nothing wrong with having investment accounts held at
different brokerages (
) or financial institutions. It diversifies your assets and risk
away from one single entity. Think about it: If you have multiple
accounts held at multiple firms and one of them goes belly-up,
you're in a much better situation compared to the
poor soul who kept all their money in custody at the defunct
Ron Grades a $108,000 Portfolio Overweight in the
But some investors have taken the idea of having multiple
investment accounts to new extremes.
For example, I recently graded a taxable
investment portfolio for a 45-year old business owner in New
Jersey. It was one of 9 different investment accounts he held at
several different brokerages. Instead consolidating some of his
investment accounts to make managing them easier, he felt it was
better to be haplessly scattered about. Needless to say, his poor
Portfolio Report Card grade of "C" on just one of the portfolios I
graded, reflected his disorderly approach. Good organization with
your investment accounts is mandatory.
Sign 2: Building on the Wrong Foundation
A home without a solid foundation won't survive very long. A little
rain and wind will easily cause it to collapse.
Many investors have erringly built the foundation or core of
their investment portfolios built on the wrong ground; non-core
asset classes. This group includes non-core assets like
derivatives, currencies, hedge funds, individual stocks,
private equity, and venture capital. While there's nothing
wrong with these particular asset classes and while they are
regularly featured in headline stories by the media, they are only
supplemental to a person's core portfolio which is built on core
asset classes like stock (NYSEARCA:VT) , bonds (NYSEARCA:BOND),
commodities (NYSEARCA:DBC) , real estate (NYSEARCA:VNQI), and
The Rules of Smart Order Execution + Ron Grades a
$353,000 Retirement Account
Building your portfolio's foundation on non-core asset classes
without first completing the construction of your portfolio's core
is backwards. It's like attempting to construct the attic of a
home without having enough sense to finish the first floor. It's
illogical and self-defeating.
Sign 3: Seeing Only What You Want to See
Myopia, also known as nearsightedness, is a disorder of the
human eye that causes it only to clearly see whatever
objects are closest to it. The unwelcome results are that
myopic people aren't able to clearly see anything that's in their
longer range vision.
In a similar way, myopic investors are unable to see the big
picture of what's really going on with their investment portfolios.
That's because they're too focused on the individual parts or
holdings within their accounts, they're unable to see anything
Earlier this week, I spoke with an investor who wanted me to
only focus on two of his existing holdings; Yahoo (NasdaqGS:YHOO)
and General Motors (
). He didn't want me to examine the entire portfolio. He also
didn't want to discuss the $250,000 bath he took on gold
(NYSEARCA:GLD) in 2013, nor was he able to produce organized
account statements. He told me, "I only want to focus on the
future of my investments, not the past." Good as that may sound, an
investor can't know where they're heading if they don't know where
they've been or where they're at presently. Put another way, if
you're stuck in the mean jungle, finding your way home without a
location device is next to impossible. Guess what? Your investments
are the same.
What are the strengths and weakness of your portfolio? Ron
Portfolio Report Card
challenge stands: If your investment portfolio scores an "A",
you'll get paid $100. Ron grades family trust accounts, 401(k)
rollovers, 457 plans, 403(b), UGMA accounts, and anything posing as
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