I’m a Financial Advisor: Here’s What’s in My Retirement Portfolio
When it comes to investing, we often turn to financial advisors for their expertise. These professionals have a deep understanding of things like market dynamics, risk management and asset allocation. You might wonder, do their personal portfolios reflect this knowledge? Is there a secret formula they use when it comes to choosing their own investments?
To find out, GOBankingRates spoke to two financial advisors: Paul Peeler and Young Park. Here’s what they had to say.
What Do You Consider When Choosing Investments?
Paul Peeler, financial advisor at Integrated Financial Group, said, “When I am considering an investment, for my clients or myself, I want to understand:
- “Does this investment increase my expected return?
- Does this investment reduce my overall volatility?
- How does this investment fit into a globally diversified low-cost portfolio?”
Young Park, vice president and senior advisor at King Tide Advisors, said this is what he considers when choosing investments:
- “What is the goal for this investment? Am I looking to invest towards my retirement or save for a house?
- Which leads to time horizon: How long do I have to achieve a particular objective? The longer time I have, the more risk I can take.
- Tax implications — If not in a retirement account, where there are certain types of tax benefits built in, I need to make sure I select only those types of investments where it can be tax efficient.
- Market and economic conditions — Reviewing the current interest rate environment, where there is potential for growth and innovation, requires due diligence and research. Also understanding market cycles and valuation of certain stocks is important.”
What’s In Your Portfolio and Why?
Peeler said, “My personal retirement investment mix is 100% equities, reflecting my time horizon and tolerance for substantial volatility. Well, over half is invested in a total market ETF. Around 20% is in a total market international ETF. Less than 10% is represented in an emerging markets ETF. A small amount, 2%-3%, is in a real estate ETF.
“This allocation provides global diversification, within and across asset classes, at a very low cost. I primarily use funds from Dimensional Fund Advisors, because they allow me to efficiently target the value and size premiums over time.”
Park said, “For me, as a 40-plus-year-old wealth management professional, the majority of my portfolio is within individual stock positions that I hand-picked at various times. Since I have 20 plus years or so until I can have access to my retirement, I can afford to take on additional risk and volatility, which is often associated with individual stocks in general.”
“They are mainly tech sector and within the large cap growth style of stocks. Although I am able to take on additional risk through individual stocks, I do not prefer unnecessary risk, which is why I focus on large cap growth style stocks. Historically speaking, and in terms of risk versus reward, large cap growths’ returns typically match the amount of risk that is involved.
“Other styles, such as small cap stocks, can have potential for higher returns, but again, not worth it when there are significantly higher volatility. And I mainly have moved to the tech sector. Ever since COVID, and especially 2022, out all of the companies in the S&P 500 index, growth was mainly driven by seven companies, which all fall in the tech sector.”
“Also, [my portfolio is] 100% in U.S. stocks. I do not have any international or emerging market stocks nor bonds,” Park noted.
“Again going back to my comment on risk and reward, I have been in the financial services world for over 20 years, and international stocks and bonds seemed to always lag behind U.S. companies and U.S. bonds. — but at the same time, have the same risk profile. At the end of the day, we are in a global economy. I don’t think there is a need to invest in companies abroad when some of the most well-run organizations and companies are right here in the U.S. If I want international exposure, I invest in U.S. companies that have significant operations abroad (i.e. Apple, Boeing, NVIDIA, etc.).”
What’s Your Advice for People Who Are Trying To Build Their Retirement Portfolio?
“I am a big believer in getting the most juice for the squeeze,” said Peeler. “Most folks go directly to investment selection and skip the most important step! Spend time upfront on your equity-to-fixed income allocation. This is going to determine your long-term returns and the short-term volatility that you will experience, much more so than choosing the ‘best’ investments.”
Park said, “Don’t let the nickel hold down a dollar. I know this may sound biased, but [despite] the recent trend, especially with all of the robo-advisors and all of the YouTube channels that offer investing advice, it’s best to hire a qualified financial advisor to help with your retirement plan and financial plan — preferably a fee-only financial advisor.
“Many people want to do this investing themselves to save on the fees. This attempt to save on fees — ‘the nickel’ — often has the ability to impact overall performance — ‘holds down the dollar.’ The analogy that I sometimes use is that yes, most often anyone with some grit and Google search can try to renovate their own home. But an inexperienced person will most likely make costly mistakes both in cost and also time. The same can be said about investing.
“Could someone do this on their own? I am sure they could with the use of index ETFs. But there are so many other considerations to review. Should you put more money into the Roth 401(k) or Traditional? What are the tax implications later on during withdrawal time? Should you focus on growth stocks or dividend stocks? What type of bonds are better during high inflationary periods? What about how it passes to your children? It’s best to have a dedicated fee-only financial advisor who knows you and your situation, so they can advise on the best course of action.”
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