The Truth About Portfolio Management: A No-BS Guide for Regular Investors
Hey everyone! I need to talk about something that nobody wants to discuss in the investing world: portfolio management.
I know - it's not as exciting as finding the next 10x stock or debating whether AI is going to revolutionize everything.
However, this might be the most important thing that determines your investing success, and almost everyone overlooks it.
Think about it: What fills up your social media feed? What's dominating YouTube? It's always about which stocks are "mooning" or which companies are the next big thing.
Why? Because that's what gets attention! That's what drives engagement.
But here's the reality: Once you actually buy those stocks, then what? What percentage should each position be? When one of your stocks doubles, should you trim it back? Should you even own individual stocks at all?
These are the questions that actually matter for building long-term wealth, and today, I'm going to break down three different approaches to portfolio management.
I'll show you which one might work best for your situation, and I'll explain the pros and cons of each strategy.
Let's dive into these three approaches:
The Pure ETF Strategy
The Core-Satellite Approach
The Individual Stock Portfolio
I. The Pure ETF Strategy: The "Sleep Well at Night" Approach
Let me start with what I believe is the most straightforward and lowest-stress approach - going all-in on ETFs. This is what makes the most sense for anyone who wants to invest without spending their weekends reading earnings reports.
Here's why ETFs are incredible: The investing world has completely transformed over the past couple decades. ETFs have revolutionized how regular people can invest, making it cheaper and more efficient than ever before.
Let's talk about my favorite ETFs, starting with the most fundamental one: the S&P 500 ETF. Whether you're looking at SPY or VOO, you're getting the same thing - exposure to America's most successful companies.
Now, here's something fascinating that most people miss: when you buy the S&P 500, you're not just getting U.S. exposure. Take Visa for example. Sure, it's listed as a "U.S. company," but it's processing payments globally! Your dollars are working worldwide even through these "American" companies.
With this fund. If you have a long time horizon, I think 8-10% yearly gains are most likely.
For pure growth exposure, SCHG (Schwab's US Large Cap Growth ETF) is particularly interesting.
This is because it holds exactly the types of companies that tend to compound value over time - Microsoft, Amazon, Google, these incredible businesses that keep reinvesting in their growth.
However, if you're more focused on income or prefer a more conservative approach, something like SCHD might be more your speed. It focuses on quality dividend-paying companies and has shown consistent dividend growth.
I really want to emphasize that there's absolutely nothing wrong with building a portfolio entirely out of ETFs. This strategy is great for spreading out your investments, keeping things simple, and it's something that even the most experienced investors recommend.
Think about this: Warren Buffett, who's considered one of the best stock pickers ever, often suggests that most investors should just put their money in the S&P 500. That's a pretty big endorsement, coming from someone like Buffett. It shows that even he thinks a diversified, index-based approach is a good choice for most people.
ETFs, or exchange-traded funds, provide a straightforward way to achieve this type of diversification. They offer exposure to a wide range of assets, and their low fees and ease of trading make them accessible to investors of all levels of experience.
The Core-Satellite Strategy: The Best of Both Worlds
Now, what if I told you we could have the best of both worlds? This is where the core-satellite strategy comes in, and honestly, I think this is ideal for most of us who want to be active investors.
Think about it like this: Instead of going all-in on ETFs or all-in on individual stocks, we can create a hybrid approach that gives us both safety and the opportunity to outperform.
Here's how it works: Imagine our portfolio is like a planet. The core - let's say 70% of our money - goes into solid ETFs like the ones we just talked about. Then, we have these "satellite" positions orbiting around it - individual stocks we believe can beat our core position.
Let's break this down with a real example:
70% in something like VOO (our core)
5% in Company A that we love
5% in Company B with massive potential
And so on with our remaining 30%
But here's what makes this strategy so powerful: We only need to put money into individual stocks when we truly believe they can outperform our core position. It's like having an internal competition - if we can't make a strong case for why a stock will beat the S&P 500, why not just add more to our core?
This approach also gives us something crucial: accountability. We can actually see if our stock picks are beating our core position or not. No more fooling ourselves!
The Individual Stock Portfolio: For Those of Us Who Love the Game
Alright, now let's talk about what I personally find most exciting - going all-in on individual stocks.
I really don’t think this is as risky as many make it out to be.
This is particularly true if you have a lot of time and follow a core investment philosophy you believe in.
This is for those of us who:
Love researching companies
Have a clear investment philosophy
Are willing to handle more volatility
Don't panic when individual positions move against us
Here's what most people get wrong about individual stock portfolios: They think it's just about picking random stocks and hoping for the best. That's not investing - that's gambling!
Instead, we need to be incredibly methodical. We need:
A clear investment philosophy
Defined entry and exit rules
Position sizing guidelines
Risk management strategies
When I say "methodical," I mean having actual written guidelines for how we'll handle different situations. For example:
When do we add to winning positions?
What makes us sell a stock?
How do we handle a position that doubles or triples?
The key is this: Individual stock portfolios can actually be less risky than people think if we have a solid system and stick to it. But we need that system first!
Putting It All Together: Which Path Should We Take?
Alright, let's get real about which strategy might work best for us. And I mean really real - because there's no one-size-fits-all approach here!
Think about where you are right now:
Are you someone who:
Has zero interest in researching stocks?
Just wants to build wealth steadily?
Doesn't want to think about investing daily?
Then honestly? The pure ETF approach is probably perfect for you. There's absolutely nothing wrong with that! Some of the wealthiest people just consistently buy broad market ETFs.
Or maybe you're like this:
Enjoy learning about companies
Want to try beating the market
But also want some safety
In that case, the core-satellite approach might be your sweet spot. You get that solid foundation with your core ETF position, but you also get to take some calculated shots with individual stocks. It's truly the best of both worlds!
And then there's us investing nerds:
We love diving into earnings reports
Get excited about business models
Want to build a focused portfolio of great companies
For us, going all-in on individual stocks might make sense - but only if we have a clear system and the right temperament.
Here's what I really want us to understand: None of these approaches is "better" than the others. They're just different tools for different situations. It's like choosing between a hammer, a screwdriver, or a wrench - they all have their place!
The most important thing is that we:
Pick an approach that matches our interest level
Stick to it through market ups and downs
Stay consistent with our strategy
Because here's the truth: The biggest mistakes happen when we try to be something we're not. When we try to be day traders while working full-time jobs. When we panic-sell our ETFs during market crashes. When we buy individual stocks without any real system.
Instead, let's be honest with ourselves about what kind of investors we want to be. Let's pick the approach that matches our personality and lifestyle. And then let's stick to it!
Remember: Building wealth through investing isn't about getting rich quick or making perfect decisions. It's about finding a strategy we can stick with for the long run and letting compound interest work its magic.
Which approach resonates most with you? Let me know in the comments - I'd love to hear your thoughts and experiences with different portfolio management strategies!
