Is Your Portfolio Cookie-Cutter?


Is Your Portfolio Cookie-Cutter?

This is YOUR life-savings we’re talking about.  Did your broker ever educate you on what your portfolio is comprised of?  No, I mean really educate you.  It always surprises me when we do an analysis of a potential client’s portfolio and we see the same types of scenarios.  People often assume that because their broker is part of a reputable name brand firm they are getting true tailor-fit advice that translates into a thorough financial plan. However, this is not necessarily true. To determine if your portfolio is cookie cutter, ask yourself these questions.

Do I Have Mutual Funds?
Brokers oftentimes utilize mutual funds for client portfolios (and sometimes it’s the only option in a 401k).  Unfortunately, most brokers offer them because they get financial incentives to do so.  It could be an entire blog post to cover all of the inefficiencies of these funds.  Just to name a few, there are usually high fees associated with these investments as well as unfair tax consequences (if you’re investing outside of your IRAs and 401ks).  However, our focus here is their tendency to be “cookie cutter”.  Oftentimes these funds restrict where you can invest and usually your investments must be chosen from a predetermined list.

Due to this, many funds have overlapping investments.  So if you have ten different mutual funds, you may own a lot of the same stocks in each fund.  You might own Apple, IBM, Chevron, and McDonalds in 8 or 9 different places!  This is not true diversification and this is what we mean by “cookie cutter”.  Now there’s no doubt that brokers try to mix up their recommendations by choosing non-correlated funds. But after a close analysis, this proves less diverse than they realize. In most cases, the client would have been better off putting their money in an index fund or ETF. Not only could it have performed just as well (if not better) but it would have had the same level of risk and in most cases 80% or more of their fees would be reduced!  If you’re going to have a cookie cutter portfolio that your broker just puts on auto-pilot, you might as well just open an account yourself and save your money.  If you’re paying for financial advice and a managed portfolio, we believe it should be worth the cost and actually do something for you which you cannot do yourself.

Do I have a Strategist?

Your financial advisor should be your chief strategist. To better serve our clients, we go out and find the very best active money managers and design a portfolio that is tailor-fit to their goals and concerns. Most brokers use a simple calculation like 60% stocks and 40% bonds.  This is the epitome of what we call cookie cutter!  You need a strategy that re-balances with the economic climate, one that can be edited depending on what direction we see the markets moving in.  For example, as I write this article, we don’t see much promise in growth companies or strategies that mimic the S&P 500.  We have shifted our focus to companies that are undervalued and have an average 5% dividend yield.  We see more opportunity in our current market climate with good, quality dividend-paying stocks than we do with the market as a whole.

We also utilize another strategy where we look for opportunities in the market.  In other words, whether the market is up or down, this strategy seeks to make a profit by finding opportunities no matter which direction the market moves in.  This strategy has done exceptionally well in down markets which makes it a good defensive play within the overall strategy for preservation and growth.  By diversifying here, we can potentially minimize the losses in another recession environment like 2007-2008, without minimizing the opportunity for steady growth in up markets.

Along these lines, another tactic we often use is a balanced approach between stocks, bonds, and several different commodities.  By diversifying among these asset classes properly, we can have the portfolio perform well among various economic environments.  There are usually four different “seasons” of the financial climate.  They are high economic growth, low economic growth, low inflation, and high inflation.  No matter which season we find ourselves in, this strategy can perform due to the diversification among the separate asset classes.  This strategy was influenced by a hedge fund manager named Ray Dalio, who manages billions of dollars with this low-volatility approach.

Does My Advisor Think Outside the Box?

In order to have a portfolio that can survive and thrive in this day and age, you need to have a strategist who is set apart from the pack.  If your portfolio is cookie-cutter, your investments are the same as everyone else.  Then, when the markets get hit hard in the next recession, so will your hard-earned life savings.  At this stage in your life, you deserve to have an advisor that will think outside the box and design a portfolio which will not mimic every other portfolio designed by Wall Street.  Wall Street has no incentive to think outside the box for you, because even if the markets crash they make commissions on the fear of others (every time a stock is sold in a crashing market they generate an additional commission on top of their fees).  This is how Wall Street made billions during 2007-2008 even though the markets crashed.

You should have an advisor who puts your interest first, end of story. On top of that, if an advisor does a poor job of managing your portfolio, their fees should go down too, not up!  This is full transparency and fiduciary responsibility. It may be time to reassess your portfolio and see how you are positioned. We would be glad to run an analysis on your portfolio and see if you have one of these cookie cutter portfolios. If you’re in small percentage of people who have a custom designed portfolio that is not correlated to a benchmark, we will shake your hand and tell you you’re in great shape; it’s our fiduciary duty to do so!  Wouldn’t you want to know where you stand?

Questions, comments, concerns? Feel free to contact me!
Rich Feola
732 364 5462


At Family Focus Financial Group, Rich develops unique retirement strategies for his clients and recognizes that there is no one-size-fits-all approach. Rich is committed to developing both a custom strategy and close relationship with each client. He believes maintaining a relationship with our clients will ensure their strategy is always on course to reach their goals. Rich Feola maintains an insurance practice and the fiduciary standard of Investment Advisor Representation, a series 66 licensed registration, with Global Financial Private Capital, an SEC Registered Investment Advisory Firm.

*Investment Advisory Services offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. Global Financial Private Capital and Family Focus Financial Group are not affiliated companies. Not intended for specific legal or tax advice. Any views expressed are for information purposes only and should not be construed in any way as an offer, an endorsement, or an inducement to invest or purchase insurance products.