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Anatomy of a Well-balanced Portfolio

The Anatomy of a Well Balanced Portfolio

Balance is important in all aspects of life, including your financial portfolio. Find out what well-balanced means when it comes to your portfolio.

What makes up a well-balanced portfolio? Andrew breaks it down for us.

Part of it depends on your age. The younger you are, the more risk you can afford. Diversity is important too. Many Americans have the majority of their wealth locked up in their home. Owning stocks and having retirement accounts is important too.

If your employer offers any matching, take it. Even if you have debt, it’s free money! Have some money invested internationally. Vanguard’s International Developed Market ETF can get you there. US investments only account for one-third of the world’s market so by only investing in US companies, you’re missing out on the rest of the world.

Never spend more than one-third of your take-home pay on rent. The same percentage goes for owning a home. The home you live in should not account for more than one-third of your wealth.

If you like to buy individual stocks, one company should never make up more than 10% of your investments.

Don't let the Kraken destroy your portfolio.

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Make sure you have an emergency fund. Six months of expenses is the gold standard but get something together if you can’t manage that just yet. Keep 6-8 weeks expenses in a checking account.

Any start into investing is a good start. Once you have a handle on what you’re doing, make sure you follow these tips to help perfect your portfolio.

Show Notes

Personal Capital: The investing version of Mint.

LMM Ultimate Investment Strategy: Andrew lays out a blueprint for you.

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8 responses to “The Anatomy of a Well Balanced Portfolio”

  1. Meechity says:

    Got to catch up on this episode today. In the show notes above you say: “Make sure you have an emergency fund. Six months of expenses is the gold standard”. I remember Andrew saying many episodes ago that his ideal emergency fund is $25,000 (invested), no matter your income or situation. Just curious if your ideal has shifted and if so, why? Thank you! :)

    For personal context: 6 months of my expenses would max out at about $9000 (not $25,000), and I will always keep 4 months of expenses ($6000) in a checking account for monthly bills.

    • jb1907 says:

      $25,000 would be a gold standard, but it shouldn’t be invested. It would be in a boring money market, which ten years ago were paying 4%-5%. It all depends are your situation. I keep a ton of cash available for large purchases in the market on large dips since those are buying opportunities.

      • Meechity says:

        My $25K safety net is in a lower-risk investment account, but is only meant for once-in-a-lifetime emergencies. There it at least has the potential to grow over the years. :)

    • Thomas Frank says:

      Andrew might correct me on this, but I believe what he meant is that you should have $25,000 invested in passive investment vehicles – index funds/Vanguard/Betterment/etc – before thinking about playing a bit and going after individual stocks or other comparatively risky things.

      However, since we often say that we keep our own “emergency funds” right in our investments, I could see how this would be confusing. We could definitely talk more on it and potentially define it better!

      In fact, now that I think about it, a very possible “emergency” could be a market crash, which often coincides with job losses on a mass scale. If that happens, and your emergency fund is all in stocks (even if it’s an index fund), it’s going to take a hit right at the time you could find yourself out of a job. So maybe a certain number of months’ expenses should be kept in a fund that’s bond-heavy or something. With Betterment, you could just make sure your allocation is adjusted to keep that bond percentage where you want it. I’ll see what Andrew thinks :)

      • Meechity says:

        Thomas, thanks. :) I would personally love to hear a 5-Questions episode dig into a FEW potential “ideal setups” from those who are super-conservative/poor to risky/rich.

        (Personal context: For now I will continue to target a $25K Betterment safety net invested at 60/40 stocks bonds, and keep $6000 (4 months) in cash for monthly bills and annual expenses. After my $25K safety net is established (6 months?) I’ll build up a 90/10 Betterment account to save for a house – I have a very flexible timeline.)

        I’ve emailed with Andrew a couple of times and trust the sage advice from LMM, so I really continue to appreciate everything you guys talk about! I especially like when you talk it out in real time, like us mere mortals. :)

        • Meechity, it sounds like your setup is excellent and I do agree that all of these “rules” can get confusing and bleed into each other. We’re going to have to do a better job of breaking it all down and discussing the potential downsides like what Thomas brought up.

          I apologize for not getting to your emails or comments lately – I’m only just coming back from a terribly dramatic burn out :)

  2. jb1907 says:

    Personal Capital is cool, but it has a limitation when it comes to Pensions. It is hard to put anything besides Cash as a security. Both our Pensions aren’t exactly available to see what they hold.

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