A Preposterous Metamorphosis of your Portfolio

 

Transmogrify your portfolio. If you are considering retirement in the next few years, it is time to prepare your portfolio.

While “Portfolio Makeovers” are popular, a superficial change of appearance is not enough.

A portfolio metamorphosis (which implies a sudden change from an immature to an adult form) is necessary before retirement. Indeed, let’s go a step furth and transmogrify your portfolio.

“Transmogrify” implies a strange or preposterous metamorphosis (source). And that is what you need!

Transmogrify your investment portfolio. You understand what the average physician thinks about portfolio makeovers (they don’t), and you know what the investment industry wants you to do (give them your money). But what should you do?

I don’t want to be a “normal” investor. Instead, I want a preposterous metamorphosis of my portfolio into something right for me.

So, let’s start transmogrifying your portfolio!

 

Why Transmogrify Your Portfolio?

Ok, so why transmogrify your portfolio?

Because, fundamentally, no one cares about your money as much as you. There is plenty of help available, but as Sartre says, who you choose as an advisor implies the advice you are likely to get. When you choose your advisor, since you know what they will say in advance, you determine in advance the advice you will receive. And the cost.

Choose freely your investment advisor, for the choice is yours alone. And who you pick determines what you get. This freedom, existentialism, made Sartre nauseated. Freedom of choice implies knowing that if you are wrong, only you will suffer.

Remember, investing is not an existential crisis: it is common sense. Which, of course, is uncommon. Thus the need for a preposterous metamorphosis of your investment portfolio.

If we take Sartre’s advice to heart, once you ask for help, who you ask pre-determines your outcome. So, be careful to whom you look for advice.

 

Who Should Advise your Portfolio Metamorphosis?

Let’s be honest: few have their investment portfolio dialed in exactly as they would like. There are legacy positions from past advisors and hot stock tips from the doctor’s lounge. You might have sector funds or expensive, loaded mutual funds. Or individual equities. Or worse.

Perhaps you have discovered that you don’t need the investing industrial complex for advice. Instead, you desire low-cost simplicity.

You understand that the market goes up and down, and you search your couch cushions for change to invest when the market tanks. You know it isn’t different this time, and you understand the academic literature on investing (think Fama and French) and Jack Bogle (fundamentally, cost matters). [affiliate links to recent books that are worth your time]

You know Rick Ferri and have read “150 Portfolios Better Than Yours.”

Who should perform your portfolio metamorphosis? You. You are ready.

 

Preposterous Investment Advice

So, here is the preposterous investment advice when you are ready for a sudden change from your immature portfolio to your adult one:

Asset Allocation

Know why asset allocation is important, and be able to state your desired asset allocation (my goal is 70-80% equities).

Cost

Above all else, cost matters. Yes, you can outperform a low-cost, broadly diversified total stock market ETF, but you cannot do it consistently after considering expenses. If you are actively investing, you do it for fun, not to make more money.

Diversification

As it is oft said, diversification is the only free lunch in investing. So eat lunch every day, but not more than that. That is, don’t over-diversify (think cost and complexity).

Simplicity

You cannot overthink investing. You should set up your portfolio correctly (“good enough”) and then not look at it again for months or years. Remember that complexity favors the industrial investment complex, and is expensive and confusing. You don’t need that structured product or that fancy annuity.

Tax-Efficiency

Finally, if you invest with tax efficiency in mind, you will beat the pants off someone who only cares about returns. It is not how much you make but how much you keep.

 

How To Transmogrify your Investment Portfolio

Ok, so here is where the rubber hits the road. You know who your advisor is. Hint: it is not the insurance person, the broker-golfer, or the AUM industry that collects your sticky money.

As Sartre says, you are your investment advisor.

He didn’t say that, but he did say choose freely, for the choice is your alone.

Who you pick will determine your outcome.

So, if you want to know how to transmogrify your investment portfolio, you need to understand yourself.

Suppose you understand the preposterous investment advice above, then you know what to do. Buy and hold. Buy everything and never sell (until you need the money). Know what you are buying (don’t get sold anything).

And more important than any other investing advice: know the purpose of that money.

How do you makeover your portfolio? When you understand preposterous investment advice, you already know how to do it. If you don’t, at least understand who you ask for advice determines what you want in the first place.

Who you ask for advice determines what you want.

Portfolio Transmogrification

In nature, metamorphosis is a sudden change from an immature form to an adult version. When applied to your portfolio, it implies changing from a haphazard (legacy) portfolio to one with purpose.

When you understand investing and the industry which obfuscates it, you are set not only to makeover your portfolio but to transmogrify it.

Make your portfolio strategically sound. What do you want your money to do for you? Will it do what you think?

Remember, most individual investors underperform. Until your investing metamorphosis, you will too.

Next, with purpose in mind, comes tactics. If you do not know what “that money” is supposed to do, then give it to someone else (who can tell you in simple language what it will do for you and then show you compared to a reasonable benchmark that it is doing what it is supposed to do).

Finally, once transmogrified, your portfolio is resilient. If you ask the metamorphized version of your portfolio what you should do if there is inflation, volatility, or any other (minor) catastrophe in the stock market, the answer is always: “well, nothing.” Once you get things set up correctly, there are few reasons to look at the stock market again—[But if you want to worry excessively, see my friend Bill Bernstein’s work].

Here is my preposterous suggestion for your portfolio makeover: do it yourself. Please keep it simple, low-cost, diversified, and tax-efficient.

If you understand prosperous investment advice, you are ready to transmogrify your investment portfolio. But, seriously, you don’t want to be a “normal” investor. Instead, become a butterfly.