Quadrant #2 of Saving: Personal Vision

Last week we explored Quadrant #1 of Saving, or Personal Vision.  This week we take the next step beyond vision to build a portfolio that attempts to bring the vision to life… at some point in the future.


This is what “Quadrant #2 of Saving” is all about:  Building a Portfolio.

Unfortunately, this step is often mistakenly addressed first (prior to the vision step) by investors and less-qualified advisers alike.  Why?  Because the portfolio is the part everyone likes to talk about!  Of course, the portfolio is essential; but success depends first on Quadrant #1 and addressing the “Commonly Overlooked” items (see last week’s edition).  plan must be in place to build the savings that go into the portfolio — no savings, no portfolio.

Quadrant #2 can also be where missteps occur:

  • Thinking you can design a portfolio yourself.  Far too much energy is spent and can lead to mediocre or losing returns in the long-run– and not achieving your goals.
  • Finding yourself being talked into your adviser using “market timing” or emphasizing various “exciting” investments… such as individual tech stocks, hot market sectors or “sophisticated” investments like hedge funds and private equity.

The essentials of building a portfolio for long-term success are far more boring and include (among other things):

  • Asset allocation
    • refers to amounts of Stocks, bonds, cash, real estate, business assets, etc.
  • Costs
  • Tax treatment
  • Optimal location of assets
    • refers to the type of account holding the assets and whether the vehicle is taxable, tax-deferred or tax-free (in an IRA or Roth IRA), or owned by a business.

Commonly Overlooked Aspects

  • How much of a cash buffer have you included in your portfolio?
  • What will be the tax treatment of the dividends or interest generated?
  • What is the balance between passive and active management in your portfolio?

Standard Objectives

  • Driving income and returns
  • Increasing dividends and interest
  • Shift from accumulating savings to distributing (also known as USING THIS MONEY SOMEDAY!)

Please ask me for advice on this step.  These are only some of the most important steps of a larger process.  More can be said about ALL aspects of building a portfolio.

Next week:  Quadrant #3…. the Programs and Other Advisers needed to implement your plan and customize your portfolio.


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