Ep 29 - The Portfolio Sanity Check: 7 Steps to Vet Your Own Investments Like a Pro (Without Having a Nervous Breakdown)

Real wealth isn't about outsmarting the market.

It's about outsmarting your own worst instincts.

And the ultimate measure of a good portfolio isn't how it performs during a bull run.

It's how well it lets you live the life you actually want.

Because freedom isn't just about having money.

It's being able to use it without delay, drama, or a fire sale on an arbitrary Tuesday.

Hello friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

So let's get started and get you one step closer to where you need to be.

This week, we're tackling one of the topics I used to get asked about more than any other.

Right up there with, should I buy gold and is my advisor secretly bad at this, we're talking about how to vet your own portfolio.

Not how to invest, mind you, that's for another episode.

This is more of a financial checkup, a pulse-taking, a let's pop the hood and see if this thing is still running in the direction you want to go kind of conversation.

And as always, limited jargon, no stock tips, just a clear-headed look at where you are and whether it makes sense anymore.

Or if, like that gym membership from 2014, it might just be time for a change.

And before we get into it, I have one and only one weekly request from you.

If this show has proved helpful to you in any way, I'd be incredibly grateful if you'd take a second to leave a review on Apple Podcasts or share it with someone who might need it.

It really helps the show grow and reach more people, and I make every episode episode with one goal in mind to be of value to you.

Not just today, but 10 years from now.

So you can come back to it anytime and still get something useful, clear, and sometimes calm, no matter how much of a temper tantrum the market is throwing that day.

So let's begin the vetting process.

And by show's end, you will have a list of the seven steps to take to run a full sanity check portfolio audit at any time, regardless of how much you know, how much you have, or how much some screaming head is yelling at you to buy the dip before it's too late.

Here are the seven steps I would and do take to evaluate my own portfolio.

Number one,

do you understand

it?

AKA, Is this portfolio a golden retriever or a pup that is lovingly referred to on adoption sites as mixed breed of unknown heritage.

Before you do anything else with your portfolio or your finances ever, you need to start as simply as possible and ask yourself one and only one question.

Do I know what I own?

Not vaguely, not I think there's a fidelity something or other in there and maybe a target date thing that rhymes with Manguard 2050.

I mean, do you really know?

Like you'd know the contents of your glove box if it held $300,000 in hard cash.

Because the last thing you want is to find out you own the Donkey-McFlonkerton Growth Fund from Goldstone Rock Pebble Advisors, and you have no idea what that fund actually invests in.

Side note, if you do own that fund, I'll bet you a buck it's the S ⁇ P 500 with a heavier weighting in Apple and Nvidia for 20 times the cost.

Don't worry, I'll send you my Venmo later so you can all pay up when you check it out.

Most people I have connected with either in a professional capacity or in an off-the-cuff, hey Tyler, you seem to know about this stuff, so tell me what I'm doing wrong capacity, have no idea what they're invested in.

I'm not kidding.

I really wish I were.

But my pseudoscience, anecdotally sound guesstimate, is that 95% of people have no idea what they own because it's either been handed to them by a partner or a parent or an advisor or an HR department or the media.

So before you say, I'm diversified, when what you really mean is I have a target date fund and an emotional support index fund, you need to peel back the label on some of these funds because what you will most likely find is the same 10 stocks over and over and over again,

dressed up in different prospectuses at different price points.

So here's your first homework assignment.

Take 10 minutes at some point today and just look at each account.

Your brokerage account, your 401k, your Roth IRA, maybe your HSA, and that forgotten rollover from your first job at Best Buy.

and ask the following.

What funds or stocks do I actually own?

What do those names mean?

The language I would Google here is the fund name and then top 10 holdings.

You'll see what the fund is most heavily invested in.

And again, surprise, you'll most likely notice it's all the same companies.

And finally, could I explain this investment to a reasonably smart 12-year-old without breaking into a cold sweat?

Because if you don't understand it, you're not going to trust it.

And if you don't trust it, the second the market drops 20%, you're going to dump it like a bad Tinder date.

I don't know, maybe ghost it.

I guess that's probably a more fitting analogy these days.

Remember, your portfolio isn't just a collection of tickers.

It's a strategy.

It's a story.

And if the story makes no sense to you, do not be surprised when it doesn't end well.

Number two.

Are you considering all of your investments across all of your accounts?

In professional investing circles, we actually have a term for when your accounts are scattered across 10 logins and three decades.

It's called a diversifiasco.

Fine, not a real term, but I like it.

Because most people do not have a portfolio.

They have a loose federation of accounts, each living its own separate little life like a strange cousins at a family reunion.

There's the old 403B from that hospital job in 2011, the Robin Hood account you opened during the Stonks era, the Roth IRA you forgot to fund after 2020, and let's not forget the HSA you opened just for the tax deduction and then abandoned like a New Year's resolution push-up routine.

The point is it's scattered, and scattered money leads to scattered thinking.

Because if you can't see your entire portfolio in one place, you cannot make good decisions about it.

Full stopsies.

You can't assess your risk.

You can't evaluate performance, you can't even figure out whether you're accidentally holding seven different S ⁇ P 500 funds like some kind of patriotic overachiever.

What you're doing is the financial equivalent of trying to cook a meal without knowing what's already in the fridge, hence why you have 37 jars of half-used mustard.

So here's what you need to do.

Aggregate.

There are plenty of tools for this, some free, some paid.

I won't name them, but you can Google them.

You could even use your brokerage's dashboard or even a color-coded spreadsheet if you're the type who enjoys formatting cells like it's a meditative practice.

Don't worry, I'm not judging.

I've known plenty of people who achieve flow states in Excel.

What matters is that everything is visible.

All accounts, all holdings, all values, one dashboard, one login, one clear picture.

This is where portfolio analysis starts.

Not with performance, not with fees, with visibility.

Because if you can't see your portfolio, you're not managing it.

You're guessing.

And that's fine if you're ordering off a menu.

Not so great if it's your entire retirement plan.

Number three,

what are the fees?

Let's say you walk into a deli.

You bring your own turkey, your own bread, even a nice little Dijon mustard you picked up on vacation, and the guy behind the counter tells you he'll charge you 18 bucks just to put the sandwich together and hand it back to you on a plate.

That's what most investments are.

Things that you could do very easily on your own, but that the world of finance has figured out you'd rather just have wrapped up in pretty little delity packaging, even if you already have all the ingredients for one low service cost.

But here's the uncomfortable truth.

Most people don't know what they're paying to invest, and even more uncomfortable, most people aren't paying one little low service cost.

And guess what, my friends?

The financial industry is absolutely fine with that.

Because when fees are opaque, they're lucrative.

Hidden fees are the moldy grout of the investing world, very hard to spot and quietly growing behind the tiles.

So here's what to look for and how to check.

Start by looking for fund fees slash expense ratios.

Every mutual fund in ETF charges an annual fee.

It's called an expense ratio.

It's expressed as a percentage of your investment.

A competitive low-cost index fund might charge 0.03%,

or about $3 a year for every $10,000 invested.

Meanwhile, An actively managed fund could charge 1% or more, which is $100 per $10,000, and that's before we even talk about how often they underperform the cheaper option.

You can check that fee by searching the fund's ticker symbol, like VTSAX or SPY, on morningstar.com or your brokerage's research tool.

Look for expense ratio.

If it's above 0.25%,

you better know what you're investing in and have a really good reason for paying that much.

And by good reason, I don't mean because Kathy Wood said it's the future of investing and just bear with it for 140 more years.

Next, I would look for advisory fees.

If you work with a financial advisor, check how they're compensated.

Many still shockingly, well, not shockingly because they're making a killing off it, charge 1% of assets under management.

That means if you have $2 million invested, you're paying $20,000 a year for a phone call about your kids.

That's great if they're also paying for those kids' college tuition with their own money, and it's less great if they're mostly sending holiday cards and quarterly PDFs that begin with any reference to tailwinds or headwinds.

I used to write those newsletters myself, and I'll be damned if I didn't get very good at referencing different types of wins.

So what's reasonable?

I think flat fees for financial planning are more reasonable than AUM fees.

Period.

I do, I'll go to my grave with that one.

Hidden commissions from product sales?

Run away and pack sandwiches.

You deserve transparency about what you're paying and why.

I'm not going to belabor this point, but if you do want to know more about the ins and outs of choosing an advisor, who's worth it, who's not, etc., check out episode 15 of this podcast where I do a deep dive on all of it.

The last part of fees I would look for is just trading fees and spreads.

A lot of financial advisors and investment managers will over-trade your accounts.

It's called churning.

Most brokerages now are commission-free, but you may still lose money through what's called the spread, the difference between the price you buy and sell at.

The problem here is that most advisors feel the need to justify their services by trading, churning, your account.

Yet each time they make a trade, they're losing the spread from your portfolio and potentially increasing unnecessary tax liabilities and cap gains for that given year.

How do you minimize this?

Stick with long-term, low-turnover strategies.

AKA, a low-cost passive index fund.

If you're trading frequently or chasing hot stocks, you're not just risking poor performance, you're paying tolls on every single trade.

Number four,

how liquid are your assets?

aka if I need cash, can I get it now?

Let's play a game.

Imagine it's Tuesday, the roof just started leaking, your dog needs an emergency surgery, and your cousin Chad, fresh out of his third fintech startup, needs to borrow 10 grand because he accidentally launched a crypto hedge fund from a jet ski.

Can you get to your money?

Not for Chad, but maybe for your mixed-breed pup.

That's what liquidity is.

It's not how much money you have, it's how quickly and easily you can use it without selling a Picasso or cashing out your kids 529.

And here's where a lot of portfolios start to show their cracks, because all liquidity is not created equal.

If you have cash, highly liquid, immediate, beautiful, like a Labrador that comes when cold.

And having two bloodhounds, I have no idea what that's like, and I envy you all.

Stocks and ETFs in a brokerage account, yeah, generally pretty liquid, though you might have to sell at an inconvenient time and not get the price you want, in essence, during a downturn.

Retirement accounts like IRAs or 401ks,

we'll call them semi-liquid.

You can access them early, but Uncle Sam will take a bite and possibly slap you with a 10% penalty.

These are more like a break-in case of emergency, and I mean real emergency fire extinguisher.

Helpful, but messy.

Real estate, private equity, or your friend's kombucha distillery.

I-liquid assets.

You might have millions on paper, paper, but if you need $50,000 next week, you're going to find out the hard way that converting your vineyard into a checking account is surprisingly difficult.

The problem is most people don't realize they're over illiquid until they need to be liquid.

And by then, they're selling assets at a loss, taking on debt, or having really awkward conversations with their spouse.

about how that 12-acre alpaca farm in Maine maybe wasn't a great diversification play.

Here's how to sanity check your liquidity.

Start by adding up your truly liquid assets.

Checking, savings, taxable brokerage accounts.

Then consider what percentage of your total net worth that is.

If it's under 10 to 15% and you don't have a steady income stream, you may be what economists call asset rich liquidity poor, also known as the person who shows shows up at a Maserati dealership and asks if they take Venmo.

Liquidity isn't sexy.

It doesn't win you cocktail party points or make your investment dashboard look more sophisticated, but when you need it, nothing else matters.

Because freedom isn't just about having money.

It's being able to use it without delay, drama, or a fire sale on an arbitrary Tuesday.

Number five, check your asset allocation and make sure you understand your risk profile.

Let's imagine your portfolio is a car.

Now, some people are cruising in a very sensible Subaru, the native bird of New England, mind you.

It's stable, boring, gets them where they want to go, and maybe smells faintly of granola or patchouli oil.

Others, they're in a Ferrari going 110 on a gravel road with no seatbelt, sunglasses on at night, and a podcast blasting about how recessions are a myth if you just believe hard enough.

Both are technically driving, but only one ends up upside down in a ditch when the market hits a pothole.

That's asset allocation.

It's not just about what you own.

It's about how those pieces work together to match your actual risk tolerance, not your aspirational one.

Because here's a little secret.

It's not so much of a secret.

Most of you don't know you have an investment strategy.

I'll bet you don't.

You might have a collection of things that you once thought were smart.

You might have a target date fund here, a bit of Berkshire Hathaway there, some VTSAX because TikTok said it slaps, and a leftover tech fund from 2011 because, hey, it hasn't crashed yet.

And by the way, you also owe me a dollar if I just described your portfolio.

But what's your actual mix of risk-on assets, aka stocks, private equity, alternatives, and risk-off assets, aka bonds, money markets, CDs, or cash.

And remember, I only want you to calculate this once you're looking at your entire portfolio in one place.

Are you 80% risk on and 20% risk off?

Great, that's a classic.

60-40?

Conservative chic.

Or are you all crypto and tulips?

You might want to think about that.

Now, Your risk tolerance isn't a personality quiz.

It's not which Taylor Swift era are you.

It's how much of your portfolio you can watch drop in value without panic selling and moving into a yurt.

If you don't know the answer to that, let me save you a few years of stress.

Your allocation is most likely too risky.

You want your mix of stocks, bonds, and other assets to do three things.

Reflect your actual need for growth, not your envy of Chad who got lucky with his hedge fund.

align with your psychological ability to stomach volatility,

and be boring enough that you forget it exists most of the time, because that's the goal a portfolio you can ignore.

Here's a practical and simple gut check.

Can you, right now, write down on a napkin your current allocation?

Now, can you explain why it's that mix?

Finally, can you watch the market drop 20% and not implode your entire life?

If not, you're either overexposed or underinformed, and neither is your fault, but both are worth course correcting today.

Because allocation isn't about flexing sophistication.

It's about building something that works when the market doesn't.

Number six, redundancies and overexposure.

Are you accidentally betting big on the same thing 14 times?

Let's talk about the illusion of diversification.

You open your investment dashboard and you feel smug.

You've got 12 funds.

12!

That's practically a buffet of financial wisdom.

Surely you are diversified because you've got a growth fund, a value fund, a dividend fund, a tech fund, a mid-cap fund, a large cap fund, an ESG fund, an innovation fund, whatever the heck that means, and three target date funds just to be safe.

And then you actually look under the hood and realize, wait a minute, they all own Apple and Microsoft and Nvidia.

In fact, the overlap is so bad you could shut down half your portfolio right now and the other half wouldn't notice.

Welcome to the wonderful world of redundancy.

Owning multiple funds doesn't mean you're diversified.

It might just mean you've paid multiple people to put you in the exact same basket of eggs and then they charged you for yet another basket.

Here's how this happens.

You start by choosing a total stock market fund.

That's great.

But then someone suggests a large cap growth fund.

Okay,

now your advisor adds a target date fund just to balance it out.

And oh, oh look, your 401k offers a blue chip leaders fund.

And it sounds patriotic, so why the heck not?

Congratulations, you're now holding four flavors of vanilla.

So what should you do?

You could start by running a fund overlap tool like Morningstar's X-Ray.

It's free and shockingly sobering.

Or you could do what I mentioned earlier, check the top 10 holdings of each fund, and if they all start with AAPL and MSFT, Congrats, you've found the redundancy.

And finally, don't be afraid to consolidate.

You can get 90% of the market's diversification in just two or three well-built funds.

More than that often adds complexity, not protection.

And here's what you do need to know.

Redundancy isn't just inefficient.

It's actually risky.

It gives you the illusion of safety while concentrating your exposure.

That's like wearing three raincoats, but all three have the same hole in the same spot on the shoulder.

You'll still end up getting wet.

So clean it up, consolidate where you can, and remember diversification isn't about owning more, it's about owning different.

Finally, number seven, is your portfolio simple enough to forget about?

Because yes, that is the ultimate goal.

I'll make this one personal to start.

When I was at my least humble, I truly believed I was a great investor and could in fact beat the market on an annual basis.

I would tinker with this, I would poke at that.

I consistently bought and sold based on nothing but a gut feeling that I just had some information that the world's fastest and most expensive computers had somehow missed.

The problem, the real problem,

regardless of how I did, whether I beat the market or not, Because I was invested across so many things, I couldn't tear myself away from headlines about markets.

Ever.

I was always thinking about where individual companies were heading and what I had to do before markets close.

This was a headache I didn't need to take on.

Once I gained just a little more humility and genuine knowledge, I realized that the highest aspiration I could have was to create something that simply invested in it all and where I never had to think about whether I was or wasn't invested across the broad market.

Because here's the part that nobody says out loud because it doesn't sound impressive at the local club or on Reddit threads about alpha and conviction trades.

The best portfolio is the one you forget about.

Not only do those portfolios tend to outperform ones that are tinkered with, but I'm referring primarily to our own mental health.

When we can stop thinking about wealth, That's when we know we've made it.

Yes, really.

If your portfolio needs constant tinkering, monitoring, and emotional regulation every time the Fed opens its dang mouth, it's not a portfolio, it's a part-time job.

And let me remind you, nobody retires early by working two jobs, especially not one where the boss is your anxiety and the benefits include heartburn and nausea.

Simplicity isn't laziness, it's design.

And the highest form of sophistication in investing is not complexity, it's simplicity.

The goal is to build a portfolio so well structured, so boring, so ruthlessly efficient that it hums along quietly in the background of your life like a dishwasher.

You load it, you hit the button, and you go do something more fulfilling, like spending time with your dog, or drinking overpriced coffee with a friend, or arguing about where to hang the third family photo that looks exactly like the other two but was taken at a slightly different angle in Cape Cod.

Here's what the financial industry won't ever admit, because it would disrupt their nonsensical day jobs within about five seconds.

The market does not reward effort.

It rewards patience.

The best advisor you could ever hope for is the one who sticks you in some low-cost funds and then never touches it again.

And do you see where I'm going that you don't actually then need the advisor?

You don't get extra points or returns for rearranging your ETFs every quarter like it's a seeding chart at Thanksgiving.

The more you interfere, the more you risk turning a long-term plan into a short-term hot mess.

So ask yourself this.

Could you leave this portfolio alone for six months and still feel good about it?

If the answer is no, then the problem probably isn't your portfolio.

It's your relationship to it.

So let's wrap this up so you can get on with your week.

The seven steps we just went over are a genuine portfolio sanity check.

It's not about becoming a full-time analyst or firing your advisor and buying a subscription to Seeking Alpha.

It's about simplicity.

It's about comfort, sanity, and confidence that you can do this today on your own or with your family.

Ask yourself the following.

Do I understand what I own?

Am I considering all of it at once across all my accounts?

Am I paying reasonable fees for what I'm getting?

Can I access a portion of my money if I need it?

Does the allocation match my goals and risk tolerance?

Am I accidentally doubling up on risk through redundant holdings?

And finally, is it simple enough to forget about?

If the answer to most of those is yes, congrats, you're doing great.

And if not, don't panic, because this is never about shame.

It's about nudging your money into a position where it supports your life, not competes with it for attention.

Because real wealth isn't about outsmarting the market.

It's about outsmarting your own worst instincts.

And the ultimate measure of a good portfolio isn't how it performs during a bull run, it's how well it lets you live the life you actually want.

And if that means you finally get to stop checking your balance every week and start spending that time taking a walk in the woods with me, learning Spanish, or re-watching season three of Is It a Cake with Zero Guilt?

That, my friend, well, it might not be a cake, but it's a win.

Thanks for listening.

And if you found this week's episode helpful, please consider sharing it with someone who's trying to do this right, or at least trying to feel a little less crazy while they figure it out.

Thanks for tuning in to your money guide on the side.

If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.