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How to Create a Set-It-And-Forget-It Portfolio


Investing can be a complex and stressful endeavor. The idea of constant monitoring, rebalancing and stock picking can be overwhelming (not to mention costly, if done incorrectly), especially for those new to investing. But what if there were a way to simplify the process and still achieve great results? Enter the world of passively managed portfolios. Think of it as a set-it-and-forget-it approach.

Research from Morningstar has shown that a hands-off approach to investing can lead to better outcomes, especially when it comes to reducing costs and minimizing the impact of market timing and individual stock picking.

Consider speaking with a financial advisor if you’re trying to decide how to take a more active approach to managing your investments. Here are four steps to creating a passively managed portfolio.

Discover The Guiding Principle Of Your Investment Portfolio

The first step in creating a passively managed portfolio is to determine your investment philosophy and goals. This will be the guiding principle for your portfolio and will inform your asset allocation, diversification strategy, and risk tolerance. Some common investment philosophies include value investing, growth investing and income investing. There are also some common methods of structuring your portfolio such as the 60/40 method.

Investors who value the preservation of capital, for example, may have a lower risk tolerance and prefer a portfolio that is heavily weighted towards bonds and other fixed-income investments. On the other hand, investors who prioritize growth may have a higher risk tolerance and prefer a portfolio that is heavily weighted towards stocks and other equity investments. The key is to determine what is most important to you and then build a portfolio that aligns with those priorities.

Streamline Your Accounts By Removing Duplicates

Once you have a clear investment philosophy and goal in mind, it’s time to assess and adjust your current portfolio. This may involve consolidating accounts, closing redundant accounts, and streamlining your investments. By removing duplicates and reducing complexity, you can simplify your portfolio and make it easier to manage. Additionally, reducing the number of accounts can also minimize fees while also saving time.

Investors who have multiple investment accounts may find it difficult to keep track of all of their holdings and may be paying multiple fees and charges. Consolidating these accounts into one or a few main accounts can simplify the process and reduce costs. It’s also a smart play to rebalance your portfolio and review your investments regularly. This is when you’ll remove any duplicates, as holding multiple similar investments can lead to concentration risk and reallocate your assets to fit your investment strategy.

Uncover Affordable And Diverse Investment Opportunities

One of the benefits of a passively managed portfolio is the ability to access low-cost, well-diversified building blocks, such as exchange-traded funds (ETFs) and index funds. These types of investments provide exposure to a broad range of assets and sectors, reducing concentration risk and increasing diversification.

These investment choices also tend to have lower fees compared to actively managed funds, which can have a significant impact on returns over time, partially due to capital gains taxes  incurred by frequently buying and selling investments.

Keep in mind when building a passively managed portfolio, you need to consider both the asset class and the specific investment. For example, investors may want to consider a mix of stocks, as well as bonds and real estate. By focusing on low-cost, passively managed options, investors can create a well-diversified portfolio without paying high fees for active management.

Keep a Record Of Your Portfolio Management Strategy

Finally, keep a record of your portfolio management strategy, including your investment philosophy, asset allocation, and the investments you hold. This documentation can help you stay on track and ensure that your portfolio continues to align with your goals. Also, it can also save you in the event of a tax audit or other financial review.

Investors who adopt a hands-off approach to portfolio management may be tempted to ignore their investments and simply let them be. However, you should never leave your investments to spiral out of control without guidance. You still need to regularly review your portfolio to ensure that it continues to align with your goals and to make any necessary adjustments. So by keeping a record of your portfolio management strategy, you can more easily monitor your progress and make any necessary changes.

The Bottom Line

Creating a hands-off passively managed portfolio can be a simple and effective way to invest for the long term. By focusing on finding your portfolio’s true north, streamlining accounts, uncovering diverse and affordable investment opportunities, and keeping a record of your management strategy, you can potentially improve your investment returns while reducing the stress and effort of active management.

Tips for Investing

  • Many financial advisors utilize passive investing as their main investment strategy. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • For those that have less money to invest, robo-advisors are a great alternative to more expensive financial advisors. In fact, many robo-advisors already incorporate plenty of index funds, ETFs and mutual funds in their portfolios. As a result, passive investing is a major centerpiece in the robo-advisor community.

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