A $1.3 Million Portfolio Report Card for JPG in Maryland

What are the hallmarks of a well-built and financially sound investment portfolio?

For some, it’s simply owning the top performing stocks or mutual funds (Nasdaq:AMCPX). For others, it’s owning the funds or ETFs (NYSEARCA:SCHB) with the lowest cost. And yet for many others, their definition of a well-built investment portfolio is to own whatever securities popular investing gurus like Warren Buffett or Ray Dalio owns.

In my latest investing podcast, I analyze and grade a $1.3 million investment portfolio for JPG. They are a married couple in their late 60s living in the U.S. state of Maryland. They contacted me because they wanted to know if their investment portfolio which was built by a financial advisor is satisfactory or not. Although many investors are paying thousands of dollars in fees, I’m ever amazed at people’s total lack of confidence in the advisors they’ve chosen to supervise their life savings.

After examining more than $150 million in investment accounts with my Portfolio Report Card grading system, I’ve seen far more poorly designed portfolios than good. This includes both professionally managed accounts along with self-directed investments. I’ve also discovered that satisfactory investment performance doesn’t happen by accident. Rather, it’s a direct result of taking deliberate steps to control cost, taxes, risk, and diversification.  Put another way, a portfolio’s bottom line performance is due to how well or how poorly it does at managing cost, taxes, risk, and diversification.

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Thus far in 2016, the global stock market (NYSEARCA:VT) has risen 7.78%, the U.S. bond market (NYSEARCA:AGG) is ahead by 6%, global real estate is up by 10.7%, and gold (NYSEARCA:IAU) has jumped more than 24%. Yet, the respectable performance of these key asset groups has largely masked performance problems at the individual portfolio level. Far too many investors are still missing the mark by substantially underperforming financial markets at the worst possible time; when markets are rising. Is it logical to believe these lackluster portfolios will suddenly redeem themselves and begin to outperform when financial markets take a turn for the worse?

Looking ahead, one of the most vital exercises an investor can take is to build an adequate margin of safety. Your margin of safety is the portion of your investment portfolio that is risk free and like home insurance, you get it before the house is set ablaze.