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3 Steps for Fixing a Broken Investment Portfolio

3 Steps for Fixing a Broken Investment Portfolio
Ron DeLegge, Editor
May 26, 2010

SAN DIEGO (ETFguide.com) – These are trying times for investors. Over the past several weeks, the stock market has started acting up by going down. Furthermore, the typical individual is just as clueless about what’s needed for investment success as they were before. Look no further than the trillion dollar retirement plans marketplace, which offers a good case study in the Land of Loserville.


The average 401(k) balance is 11 percent lower today versus three years ago, according to Hewitt Associates. Put another way, the average 401(k) investor is performing substantially worse than the average! What’s gone wrong?

For too many Americans, investing has become a day at the racetrack.

What can you do to fix your broken investment portfolio?

Getting Your Mind Right
In one of the most famous movie lines of all time, the prison warden in the movie Cool Hand Luke tells Luke (Paul Newman) that he needs to “get his mind right.” Similarly, before a successful investor can get their money right, they must first get their mind right. This requires an honest evaluation of one’s self.

For example, when it comes to money and investing are you short-sighted, compulsive, over-reactive, fearful, arrogant, gullible, stubborn, disorganized, disorderly, illogical, lazy, lost, unrealistic, overconfident, vulnerable and uninformed? If you have any of these destructive characteristics, it will obviously show up in your bottom line. It will impede your progress.

Contrast the previous list, with the superlative qualities of an individual who has their “mind right.” They’re decisive, responsible, reasonable, orderly, vigilant, discerning, deliberate, disciplined, patient, calm, prepared and educated. Simply put, someone that has a properly trained mind is more likely to reach their investment goals.

The first step in fixing a broken portfolio is fixing a broken mind.

Getting the Right Building Blocks
Ask anyone in the construction business and they’ll explain to you the first leading cause of destroyed homes is shoddy building materials. The second leading cause is building the home in the wrong place. (i.e., the side of a mountain cliff, on top of an active volcano, in the middle of railroad tracks, etc.)

Similarly, the first leading cause of substandard performing investment portfolios is building with shoddy investments. This includes but is not limited to mutual funds that have style drift, window dressing, portfolio churning, job-hopping managers, elevated fees and consistently high tax distributions. Do you own these types of funds? 

At the opposite spectrum, are investment building blocks (the right ones) that don’t subject your money to the previously mentioned nonsense. Index mutual funds and index ETFs fit the bill.

The second step to fixing a broken portfolio is to build your portfolio with the correct building blocks.

Getting the Right Mix
Asset allocation is fancy jargon for “getting the right investment mix.” Serious investors understand that having the right mix of investments produces desirable results. For instance, it can lower investment risk and simultaneously increase gains. What about you?

If you closely analyze the ingredients on the side of a Coca-Cola can, you’ll see that it contains carbonated water, corn syrup, food coloring and sugar. Each of these ingredients is readily available to anyone. However, what’s not readily available is Coca-Cola’s secret formula or ingredient mix. It’s this secretive mix that’s produced a multi-billion dollar beverage dynasty. Is it remotely possible that having a similar strategy can benefit you?

The third step to fixing a broken portfolio is getting the right investment mix.

Counting Your Fruit
“By their fruits you will know them,” were the sage words uttered some 2,000 years ago in the gospel of Matthew. A rotten good for nothing tree produces no fruit. On the other hand, a good tree produces fruitage. What kind of fruitage has your investment portfolio produced?

Despite swooning financial markets, ETFguide’s Ready-to-Go ETF Portfolios have produced fruitage. Through the market close of May 25, the World Traveler Portfolio is ahead by almost 7 percent! Each of these ETF portfolios contains a detailed analysis of portfolio holdings, investment rationale and buy/sell alerts. Here’s yet another tool to help you fix a broken investment portfolio.

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