Morningstar's 2021 Portfolio Makeover Week
Christine Benz helps investors check their progress, assess allocations, target holes and overlap, and upgrade their holdings.
Kate, a 45-year-old freelance educator and artist, and Mark, a 50-year-old college professor, welcomed their first child 18 months ago, just as the pandemic was unfolding in the United States. Kate and Mark find themselves taking stock of their life and their goals, including their financial situation. Their long-term financial goals are to save for college for their child while simultaneously investing for their own retirements. But they have shorter-term financial goals in mind, too, including the purchase of a larger home and taking advantage of Mark's upcoming sabbatical to live and travel overseas.
Kate and Mark would also like a second set of eyes on their million portfolio, which they've been carefully building up during their careers. They've been assiduous savers, but their portfolio is also sprawling, with nearly 60 holdings across seven accounts. They're also concerned about the amount of cash that they're holding.
Conrad, a 63-year-old scientist, and David, 58, a marketing executive, have established successful careers, but they're looking forward to a less frenetic schedule at some point in the not-too-distant future. Conrad would like to retire at age 66, and David hopes to continue working through his mid-60s.
They've amassed a healthy portfolio, and they’ll also be able to rely on pension income and Social Security. But with success often comes complexity, and Conrad and David worry that their portfolio is more complicated than it needs to be, especially as they get closer to retirement. 'I want to simplify our portfolios, which have way too many moving parts," Conrad wrote.
Additionally, Conrad is seven years older than his partner, and wants to ensure that their money lasts for both of their lifetimes. "I want to make certain that we will have enough income to support us in our retirements, especially with concerns over rising healthcare and housing costs," Conrad wrote.
Jim, a 77-year-old retired contractor, and Ellen, a 73-year-old retired retail executive, had little in retirement savings. But then they realized they had a valuable asset right under their noses. A seaside home they purchased and renovated together--which Jim describes as "the worst house in a beautiful neighborhood"--has appreciated nicely since purchase. "We found ourselves decades later with a greatly appreciated asset and a familiar buyer who only wants a real estate investment and will let us stay in our home and rent it."
After closing on the home sale, Jim and Ellen will have a hefty sum in cash, which will go a long way toward tiding them through another 20 years or so of retirement. The big question, however, is just how those funds should be invested given a lofty market environment. Jim laid out the conundrum well: "Here we are with the stock market close to an all-time high, the bond market paying historically low interest, and savings, money market, and CDs also paying next to nothing in interest."
Lily, a 29-year-old freelance content strategist, was bitten hard by the investing bug a few years ago. She has amassed nearly 100 holdings across her various retirement accounts but wonders if her many stocks and funds make sense as a portfolio. "How do I keep from over-diversifying?" she asked. "When I started out in investing a few years ago, I tried to beat back FOMO with a stick, but it's so hard to stay focused."
Lily is also seeking help on how to invest for different goals with different time horizons. "If I want to buy a house in five years, take a break from working while raising children, and then go back to work and eventually retire in 30 years ... how can I be assured that my money is properly allocated according to the various time horizons?" She says she likes the bucket approach but isn't sure how to put it into practice.
Retired for nine years, Lauren and Matt have established a comfortably sized portfolio and live within their means. But Lauren describes their portfolio as "a mishmash of many trades and conflicting brilliant ideas." Lauren has been a self-taught do-it-yourself investor since receiving poor advice from a financial advisor while she was still working. "[The advisor] steered me into some very questionable investments and that's when I turned to Morningstar to research some of her choices, and on many buys, I did not do what she wanted, thankfully. That is when the crash of 2007-08 happened, and I lost lots of money on investments that were not sound in the first place and would never come back."
Lauren and Matt now hold many top-rated funds, but they're not clear on how they fit together and support their spending plan. "I'm afraid my portfolio is just what it has morphed into and not the best choices for me now that I am retired and taking required minimum distributions," she wrote.
Note: Names and other potentially identifying details in the following makeovers have been changed to protect the investors' privacy. Makeovers are not intended to be individualized investment advice, but rather to illustrate possible portfolio strategies that investors should consider in the full context of their own financial situations.