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Commentary

7 Pitfalls to Avoid When Building a Lineup

Keep these common missteps top of mind.

When Morningstar’s manager selection team assembles lineups for our institutional clients, both retirement and nonretirement, there are always certain positive attributes we’re striving for, such as appropriate diversification, high-rated fund managers, and low net fees. At the same time, we try to be cognizant of potential pitfalls in our lineup design that could trip up investors down the road. Setting up things in a way that minimizes behavioral errors as well as exogenous investment risks can be just as important as, say, picking the right funds.

Below, I cover some of those potential traps and errors that can arise when building a lineup. Although we think about how investors will be using them in a more institutional context, often within a retirement plan, many of these points are equally relevant if you are building your own individual portfolio.

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