What Kind of "Tricks" Are Lurking in Your Portfolio?

As young ghouls and goblins prepare for the Halloween ritual of trick or treat, I’m reminded that some people have “tricks” in their investment portfolio, only they may not know it.

One of my fondest memories of trick or treat as a kid was dumping out all the candy on the floor and sorting through it. I was a fan of SweetTarts, Milky Way and 3 Musketeers as kid. The licorice, Ding Bats and Peanut Butter Bars were either traded to friends or ended up in the trash can weeks later. The good news was that the candy treasure was transparent – I knew what I had - and could allocate my consumption for maximum enjoyment. 

I was reminded of this recently when we did a portfolio analysis for a prospective client. The client’s brokerage firm advisor had correctly told them their “management fee” was .8% per year. Yet consumers often overlook that management fees are only part of the fee equation - that the cost of the underlying mutual funds should also be considered. Our analysis showed that our comparable portfolio would save them over $3,500 per year in total fees. That’s a lot of candy!

The other surprise was in evaluating the bond segment of the portfolio. We’re purposefully conservative with our bond portfolios, with a focus on investment grade credit quality and very short duration. This has allowed our bond portfolio to deliver positive returns through the first three-quarters of the year despite rising interest rates.

Bonds are largely viewed as the conservative portion of one’s portfolio. Not knowing the risk within this segment is akin to unwrapping a Milky Way only to find a Ding Bat inside!

If you’d like to get a second opinion or objective analysis of your portfolio give us a call.