I have been trying to find out more about model portfolios now that Morningstar provides a lot of data on them. At first sight, they seem to be beneficial for both investors and financial advisers, but they are unregulated, which can create problems. I came across this
article. It is very critical of model portfolios and raises a number of issues. I wonder if people here have come across any of these questionable practices in broker model portfolios. Thanks, Alban
Comments
February 14, 2016|by Pat McKeough
1978, 1998, 2007, 2016 or 2023...............a model is a model. Everyone has a 'model' in their head, dependent upon one's financial goals and means to arrive at that goal. The assumption of an 'investing model' of being only the stock market is 'strange'. Market investments are models of some form.
VWINX operated by Vanguard/Wellesley is a model for a conservative investment.
Not including taxes and inflation since its inception in 1970, the fund has a 15 year return of 6.30% and a lifetime return of 9.30%.
@Alban Maintain reading and studying, remain curious to help with learning. All of us here are 'still' learning. As with your post, continue to ask the proper question in hopes of finding a proper answer.
--- Strictly my opinions, of course.
To me they mean about the same thing. In essence, these are planning devices to help assure the risk you are taking is appropriate to your own situation and that you are well diversified across asset classes. Here’s a link to some possible allocation models on TIAA’s website. If you scroll about half way down, they will come into view. I’ll fault them for being a bit too simplistic (showing limited investment options) but they might serve as a starting point for someone new to asset allocation. Of course, almost all fund houses nowadays offer “pre-cooked” models in the form of specific funds you can buy that you can try and “sync” with your risk tolerance. It’s tought to beat the performance of these over the longer term by cooking your own but most of us here still endeavor to. A few of the better ones IMHO: VWINX for very conservative investors and PRSIX or TRRIX for someone slightly more aggressive. But I’d have a hard time faulting any from TRP. Just depends on your risk tolerance, age etc. Watch the ER when buying a multi-asset allocation fund - generally, the lower the better.
One thing I do differently from most models is to include in the mix some alternative funds (think “long-short” / “market neutral”) and also a small weighting to real assets (metals, real estate, etc.) That’s not a recommendation. Just wanted to demonstrate how you might adjust those simplistic models I’ve linked to fit your own needs.
While one big feature (I think a plus) of a model portfolio is that it encourages you to rebalance periodically and provides a framework for so doing, not all investors think that’s a great idea.
The SEC is only concerned with listed funds and no game playing is allowed with those.
So, if a model is based on listed funds, I am not sure if much tinkering with performance is possible. There is some wiggle room in how the merged funds are handled.
If models include proprietary or private/unlisted funds, that is another matter.