Chapter 9The Do-It-Yourself (DIY) Solution

“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.”

—Talmud, c. 1200 BC–AD 500

What is your portfolio's mission? Wealth is often built by concentrated holdings in the form of hard work, a family business, or an entrepreneurial endeavor, but wealth is protected by diversification. Having a clear purpose is the most important step when it comes to portfolio management. If the purpose is to generate enormous returns, that requires one type of portfolio, but if the purpose is to preserve wealth, that requires a completely different portfolio. For most families, the mission for their portfolio should look similar to the following:

  • Purpose of the portfolio: Preserve and compound wealth to assure financial security.
  • Return objective: RF (10 yr) + 400 bps, after-tax, and after-fees.
    • E.g., 10-year = 2% c09uf0001 6% nominal return objective.
  • Risk appetite: As low as practical to achieve objective.

While there is no “one-size-fits-all” portfolio, a systematic framework for decision-making can help simplify the process and minimize human errors. For every allocation contemplated, and each strategy that needs to be critically assessed, the FACTS framework (consisting of Fees, Access, Complexity, Taxes, and Search) can be employed to clarify important considerations ...

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