Buying a suit off the rack and wearing it “as is” can work. Buying a suit off the rack and tailoring it will likely give you a better fit and overall look. But there is nothing like a bespoke suit made just for you by a professional tailor. You can get the best fit possible when you have something made just for you. It can be designed to accentuate your best features, made in a color and style that will both please you and be appropriate for the occasion in which it will be worn.
The same is true of investment portfolios. You can choose something standard, have a standard portfolio tailored slightly to your needs, or have an investment advisor build a portfolio just for you based on your resources, needs, goals, timeline, risk tolerance, current market conditions, and more.
Why Portfolio Customization Matters
As lovely as a good suit is, your portfolio strategy can be critical to your financial well-being. Customizing it can help to significantly impact your financial wellbeing, supporting you as you strive for specific goals. This is especially true for high-net-worth investors whose opportunities and challenges may be complex.
A personalized portfolio enables you to consider more than just what generally works for most people. It gives you the freedom to fine-tune and manage your level of risk and comfort, meet a variety of goals with different timelines, invest only in companies that share your ethical views, help minimize your tax liability, and pivot as your life evolves and economic conditions shift.
Key Components of Building a Custom Investment Portfolio
A custom investment portfolio differs from a standardized one in three basic ways:
- The amount of personal information incorporated into its design.
- The degree of detailed strategy for selecting and updating investments.
- The use of advanced investment strategies.
Diversification and Asset Allocation
But exactly how is the appropriate balance of risk and reward created in a portfolio? The most basic (and important) adage in investing is, “Don’t put all your eggs in one basket.”
If all your assets are concentrated in a single investment or even a few similar investments, what happens if that investment suffers a loss? Clearly, this could be catastrophic, making it a poor risk management strategy for anyone. No matter how enthusiastic you feel about a particular stock, commodity, or type of real estate, it’s essential to spread your investments across multiple asset classes and positions within those classes. This is called diversification and helps to prevent losses in one investment from having too significant an impact on your entire portfolio.
Asset allocation is the process of building a portfolio using different types of investments. One basic and popular strategy for building a portfolio is the 60/40 model. This means 60% of the portfolio is invested in stocks, with 40% in fixed-income securities. While this model may offer better risk management than owning all one stock, for example, it isn’t necessarily right for all investors in all markets. An individual asset allocation formula can be developed in a custom portfolio to help optimize the risk-reward balance for your personal circumstances under current market conditions.
Beyond just diversifying among asset classes, you can also diversify within classes. For example, you might invest in domestic and foreign stocks, if appropriate, or a mix of large- and small-cap stocks.
In addition, when you have a portfolio personalized for you, your financial advisor will monitor it regularly and make changes as needed to maintain a risk-reward balance you’re comfortable with as your needs and economic conditions evolve.
Integrating Advanced Investment Strategies
Traditional investment strategies focus on buying and selling stocks, bonds, and cash equivalents. These are the basic building blocks of any portfolio. However, the advanced investment approaches available in a customized portfolio can provide additional opportunities for diversification, risk management, and enhanced returns.
Advanced investment strategies may include investment in alternative investments, risk management, and hedging strategies.
Alternative investments include private equity, venture capital, real estate, hedge funds, commodities, and more. They may provide unique opportunities not available through traditional investments, including the chance to invest in emerging technologies, specialized sectors, etc.
Hedging and other risk management strategies are used to potentially reduce risk and enhance returns. These may include using options, futures, and/or specialized techniques to optimize buy/sell timing, protect gains, and hedge against market volatility.
The Role of Bespoke Investment Solutions
Maintaining and growing wealth is the cornerstone of any financial plan. If you have significant assets, tailored investment solutions may play an important role in this, helping you fulfill the goals you’ve set for yourself, financial and otherwise.
To be custom-matched with a financial advisor you can trust to support your goals with customized planning and a personalized portfolio, take advantage of Carson’s advisor matching program today.
Kyle Hatch is not affiliated with Cetera Wealth Services LLC.
A diversified portfolio does not ensure a profit or protect against loss in a declining market.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
Options are not suitable for all investors.
Some alternative investments involve a high degree of risk, and returns can be volatile. Investing in an alternative investment may only be suitable for persons who are able to assume the risk of losing a portion or all of their entire investment.
8101750.1-0625-C
