This past weekend my church participated in a serving project at a local elementary school. The school has a garden they use to teach their students about nature. It has vegetables, fruits, and a natural habitat with native Texas plants and trees.

When we arrived at the school it looked like the garden didn’t need any work. From a distance it appeared tidy. However, when we started inspecting it there were several weeds, buried walking stones, and overgrown brush. If we had not done a close inspection, we would’ve missed all the items that needed a little extra TLC. As a result, we put our gloves on and got to work.

On the surface, your investment portfolio may appear fine. It might look good from a distance, but how does it appear after a close inspection? Are there things in your portfolio that need to be pruned or added so that it performs well over time?

What items are lurking in your secret garden? Here are a few suggestions to help your portfolio sprout some new growth.

High Fees. When was the last time you had your fees audited? Do you own expensive mutual funds or insurance products that could be hindering your returns? How do you know if you’re paying high fees? If you’re not sure, talk to a Certified Financial Planner® who can help benchmark your fees to similar assets. A search of similar funds or products will give you an idea if your fees are high, low, or just right. If you do own investments with high fees, consider moving them to lower cost alternatives.

For example, the Quaker Strategic Growth Fund (QUAGX) has a front-end sales commission of 5.5% and annual expenses of 2.22%. It also has an annual turnover of 185%. It has a 10-year average annual return of 7.26%. By comparison, the Vanguard S&P 500 Index Fund (VFINX) does not have a sales commission and the annual expenses are .14%. The annual turnover for this fund is 3%. It has generated a 10-year average annual return of 11.92%, and it has outperformed the Quaker Fund by 4.66% per year. High fees will choke your portfolio of future growth.

Poor Asset Allocation. Your asset allocation will determine your portfolio’s long-term performance but if it’s inconsistent with your goals and risk tolerance, it must be changed. Your portfolio may carry too much, or not enough, risk and this will cause a problem at some point.

For example, if you were 100% invested in stocks in 2007, you lost 37% of your account balance in 2008. Likewise, if you were 100% invested in cash in 2009, you’ve missed a 340% move in the S&P 500.

Your asset allocation should reflect your goals, risk tolerance, and time horizon. If your risk tolerance is high, you’ll want to own growth-oriented assets such as stocks. If it’s low, you’ll own more conservative assets like bonds.

After your asset allocation is defined, establish an annual rebalancing for your portfolio to keep your risk profile intact. An annual rebalance is like a crop rotation.

No Financial Plan. Your plan will help prioritize and quantify your financial goals. It will guide your investment decisions over the short and long-term. More importantly, it will keep you grounded during all economic conditions. If you follow your plan, it will help you navigate the volatility in the stock market. It will also help you answer questions like: How much is enough? Your plan will be your most important tool to maximize your wealth. It will be the design of your financial garden.

As we launch into the fourth quarter of the year, use this time to review your holdings, asset allocation and financial plan. Dig deep into your portfolio and remove the weeds so your portfolio can generate fruit for years to come.

It is like a grain of mustard seed that a man took and sowed in his garden, and it grew and became a tree, and the birds of the air made nests in its branches.” ~ Luke 13:19

10/2/18

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.