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I have been reading in some of the comments on the Forum recently that some of you use a total portfolio approach for your investments. I tried to look it up in Jonathan’s guide but couldn’t find it. I don’t know what this is and was hoping some of you might be able to explain it in a way I could understand. I am not sure if this is something I need to research more? I tried to look it up on Mother Google but didn’t understand what the AI said it was. I am guessing this is something different than having your investments in pre-tax, Roth and brokerage accounts? Thank you, friends, you are always gracious to teach. Chris
Hi Chris. It has to do with your asset allocation. A total portfolio approach applies a holistic asset allocation across all your investments. Say you choose a 60/40 asset allocation, each individual account might not be strictly 60/40, but the overall result when accounting for all accounts would be 60/40. For example, you might hold more bonds in your tax deferred accounts and your brokerage account might be more heavily invested in an index fund or other tax efficient investments, but when considered together, they still result in a 60/40 allocation. That’s a total portfolio approach.
I looked the question up using Gemini and it gave a very good explanation and a side by side comparison of other approaches. Noted it’s used mostly by institutional investors.
Chris, that’s a great question, and one that this dumb investor has no readily available answer. Following your lead, I also turned to AI for some clarification. I still can’t explain it clearly, but my impression is that it’s a term invented by active managers trying to get us to pay them old fashioned management fees by promising market-beating mutual funds.
Please, someone correct me if I’m wrong.