We live in a Golden Era of misaligned investment portfolios. These are rogue, poorly designed portfolios (401k, IRA, Roth IRA, UGMA, 529 plans, etc.) that are architecturally unsound. And for whatever reason, the people who own them are intent on self-destruction.
The Portfolio Report Card method I invented for analyzing and grading portfolios uncovers most of the investment problems that afflict people. The simple grading system of A, B, C, D, or F helps investors to understand the financial condition of their investments in the only five areas that matter; risk, cost, taxes, diversification, and performance.
Since May, I along with a growing network of financial advisors using the Portfolio Report Card method have already evaluated and graded $12 million in portfolios. Isn’t it time I share with you six of the common portfolio types that I’ve encountered (and keep encountering)?
1) One-Trick Pony
This is a one stock, one mutual fund, or one asset class portfolio. Often, this is the kind of portfolio that experiences temporary success, like a lucky stock pick (NFLX) that goes to the moon and emboldens the investor. Typically, this type of portfolio hums along until one day it’s suddenly obliterated by an unexpected scandal, bankruptcy, or other unpredictable shock.
2) What’s Hot Today
This is the portfolio that contains the most talked about, the most widely held, and the most popular stocks and investments in the present moment. The only two questions that people with this type of portfolio care about or ask is: What’s hot right now? Why don’t I own it?
3) What Was Hot Yesterday
This is the portfolio that contains the most talked about, the most widely held, and most popular stocks and investments in previous eras. The only question that people with this type of portfolio typically ask is: How did my hot stocks and funds (FMAGX) turn so cold?
4) The Inherited Portfolio
This is the investment portfolio bequeathed by a family member (parent, grandparent, uncle, aunt, etc.). It often contains totally unproductive stocks (SHLD) or funds (DRPEX), but parting ways is a mammoth emotional challenge. Adjusting anything within the portfolio – no matter how small – turns into a crisis of the nerves and unwanted voices like “I don’t want to disappoint mom or dad” with all of these changes. Separation anxiety reigns.
5) The I Got Burned Portfolio
This is the portfolio that got clobbered during a bad market (QQQ), fell prey to a financial scam, or got utterly trashed by an investment that blew up. These types of portfolios are usually concentrated in one asset class like cash (SWMXX) or gold (IAU).
Investors with this type of portfolio are completely paralyzed by their previous mistakes and can’t move forward. They are forever waiting for just the right time to get back into the market or to make one big decision they believe will change their losing streak.
6) Everything but the Kitchen Sink
This type of disorganized portfolio owns so much of everything that it resembles the local swap meet. The disorder of these portfolio types is magnified by multiple investment accounts scattered in so many far-flung places the poor investor has lost track of his or her own money. And so it is: Kitchen Sink Portfolios are an over-diversified mess of everything held everywhere.
Does your investment portfolio pass or flunk?
Ron DeLegge’s Portfolio Report Card challenge stands: If your investment portfolio scores an “A”, I’ll pay you $100. Ron grades family trust accounts, 401(k) rollovers, 457 plans, 403(b), UGMA accounts, and anything posing as an “investment.”
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