Is Your Investment Portfolio Actually Any Good?

If you’re a long-term investor using a financial adviser/wealth manager to help you build your portfolio, you probably understand the basics of asset allocation, but if you don’t or that’s where the extent of your knowledge concerning your portfolio ends, rest assured that you’re not in an uncommon position.

After all, that is why you have an adviser, right?

The fact is, loads of people invest with advisers and put their faith in them to do a good job and that’s fine. Personally, I believe that even if you are working with an adviser, you should make sure you understand how your money is being invested.

But, if you trust your finance bod and prefer to spend your time and energy on other things more interesting than finance and investments, I totally get it.

For those of you who perhaps want to take closer order of your investments, you can start by looking at whether or not your portfolio is actually any good.

But what does ‘good’ mean and what would that look like in a portfolio?” 😐

Ok, let’s kick things off by considering the following:

If I want to invest for 5 years and at the end of those 5 years, my portfolio has made 7% per year, does that sound like a ‘good’ portfolio?

But what if the average market returns were 10% per year and your portfolio only achieved 7%? Would you say that is good?

What if the annual inflation rate has been 4%? Portfolio still looking good?

What if the portfolio is down 10% and the markets generally are down 15%?

What if my target return was 5% and we achieved this by placing everything in a couple of sector-specific funds that have been swinging wildly between +20% and -15% throughout the 5-year period? We got the job done, but could it be considered a ‘good portfolio’?

As with many financial planning-related questions, you could say it all depends.

To an extent, the answers to the above questions are subjective and so we need to consider both the expectations of the investor versus the reality of the outcome and also, how the portfolios are built in order to to achieve that outcome.

Remember that when we’re talking about a good portfolio, we’re talking about what is a good fit for your needs.

An Audi R8 is a good car  – well, it’s a great car – but it’s not so good if I need it to transport a wife and two kids (it’s a 2-seater for those not familiar) or if I need a vehicle for off-roading.

Good is always relative to the purpose . . .

Audi R8
Audi R8: great car, but rubbish family vehicle.
Image by Marlene Bitzer from Pixabay

There are a fair few opinions out there on how exactly assets within a portfolio should be allocated and which management strategy should be employed for best results. I have my own opinions too, but ultimately, a good portfolio is one that has optimal asset allocation.

There is always a trade-off between risk and return and there is a tool in Modern Portfolio Theory called the Efficient Frontier, which represents the best combination of assets to achieve a given level of return.

We don’t need to get into all that here, but basically, you can view it as the academic, fancy-pants way to explain achieving the desired return at the lowest possible risk.

This is done by using the right mix of available assets, which is called asset allocation and diversification and is explained in this post.

It’s about using the right type of funds and managing them accordingly. A common phrase used when discussing portfolios is ‘don’t put all of your eggs in one basket’.

I’m sure you’ve heard that one before. It’s about spreading out your risk to achieve your goal.

And that, on a simplified level, is what makes a good portfolio.

At least part of what makes a good portfolio. If you also include the other factors below, which relate to the requirements of the client, you’re pretty much there:

  • Attitude and tolerance to, but also capacity for, risk
  • Expected returns (which need to be in line with risk)
  • Time horizon
  • Currency
  • Liquidity
  • Tax

If you look at your portfolio with this in mind, you should be able to start getting a feel for whether or not you have a good portfolio.

If the portfolio does not reflect these things, then it is probably not a good portfolio for you.

The other way to examine this is to consider what makes a bad portfolio:

  • Poor allocation (not in line with your return expectations)
  • Poor diversification (not in line with your risk attitude, tolerance and capacity)
  • Expensive assets (fees drag on performance)
  • Illiquid assets (it’s almost always better to get to your money if you need it in a hurry)
  • ‘Toxic’ assets (poorly managed or outright scams)
toxic investment products
Some assets are ‘toxic’.
Image by Elias Sch. from Pixabay

A common ‘toxic element’ I see in portfolios brought to me by expats or former expats is over-exposure to alternative investments and structured notes.

Now, these two investments each warrant a whole post of discussion.

And I’ll get to that another time, but for now, I’m going to say that, whilst there are investment advisers who may well be able to make a valid case for some allocation to these in a portfolio, unfortunately, the main reason why these appear in a portfolio is not because of the advisers’ great insights and analysis of the markets, but simply because of the ‘C-word’.


Your adviser gets paid to put these in the portfolio, so straight away, you know he is not acting in your best interests.

Now I am sure the financial product salesmen, distributors and issuers of these investments can come back to me with all these great reasons why everyone should have them in their portfolios (levels of capital protection, fixed risk and return characteristics, etc), but sorry, guys – it’s about them getting paid first.

Most of the time, there is no good reason to use them unless you like seeing the growth of your investments stunted by commission fees – you end up paying those commissions one way or another.

Only an idiot is going to do that. And that’s not you, right?

Many mutual funds will also pay upfront or trail commission to the broker, depending on the class. Now, the thing that most clients don’t know is that there is almost always a class available that does not pay the adviser a commission and almost always an equivalent Exchange Traded Fund (ETF).

There are exceptions, but they are few and far between.

As long as you’re working with an adviser who is paid on commission, your recommendations will always be led by what they get out of it.

In other words, advice that suits the adviser.

The adviser may also work for a company that has its own range of funds and so these fees all go back to the company.

It is not really any different, although may be worse, since the client is limited to the company’s fund range rather than being able to shop around.

Related post: How Are Financial Advisers Paid?

Related post: How To Choose A Financial Adviser


A good long-term portfolio needs to be suitably allocated and properly diversified according to the risk profile you have chosen and how long you are investing for or when you might need access to the money

A good long-term portfolio needs to have low running costs. The higher the fees, the greater the drag in performance. Don’t be fooled by advisers saying things like, “You get what you pay for.” Or, “The entry fee is because this is a top-performing fund.”

That doesn’t ring true when it comes to investments, I’m afraid.

A good long-term portfolio should not need to be ‘chopped and changed’.

Stick to broad equity assets for the bulk of the portfolio and ‘spice up’ with sector-specific or regional assets according to your objectives.

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