asset allocation

5 Things Every Investor Should Know About Their Portfolio

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When I first started to invest on my own at 19 through a Scottrade account, I admittedly had no idea what I was doing. I would scour through articles on the internet looking for information on the latest and greatest technology in hopes of finding a hidden gem of a company to buy stock in. I paid zero attention to what stocks my portfolio eventually held or the amount of “risk” I was taking. Looking back, even though I am a risk taker, I’m sure that I wouldn’t feel comfortable with that portfolio today! As my knowledge of investing grew, and as I eventually worked in the industry and earned my Certified Financial Planner™ credentials, I’ve come to identify 5 things every investor should know about their portfolio, regardless of your current expertise!


When it comes to choosing investments and building a portfolio the most obvious thing to be aware of is cost. Typically, there are two types of costs to be conscious of – 1. commissions and 2. ongoing expense ratios.

Commissions are charged by some brokerage firms to conduct trades when either buying or selling investments. It’s important to understand the impact commissions can have on the performance of your portfolio. If you plan on trading often due to making ongoing contributions to the account, or simply planning on being an “active” investor, commissions eat into your performance. If you start with $10,000, and it costs $200 to invest the funds, you’ve already started with a negative 2% return.

Fortunately, brokerage firms typically offer no transaction fee funds or have gotten rid of commissions altogether. Allowing investors to put the bulk of their funds to work for them.

The second type of cost is expense ratios. Expense ratios are charged by mutual funds and ETF’s (exchange-traded funds) as an ongoing expense to invest in their fund. Today, index funds (a passive mutual fund) and ETF’s have drastically driven down the costs of expense ratios to the point where it’s almost negligible. Vanguard, Fidelity, and SPDR index funds can all cost as low as 0.05% annually, and it’s more likely than not that we’ll see zero expense ratio funds soon.

Academic research has shown that low-cost funds tend to outperform their more expensive counterparts over extended periods of time. It’s no surprise that index funds and ETF’s now get the majority of investor inflows as this information has come to light.

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Asset Allocation

How we allocate our investment funds greatly impacts the risk or our portfolio and should align with the underlying purpose of our investments. Going back to my former self, I didn’t consider asset allocation at all when building out my portfolio, I simply selected stocks I thought would perform well. This included several U.S company stocks, with very little international exposure. Breaking it down further, I was heavily weighted towards the technology sector with little exposure to real estate, utilities, financials, or consumer discretionary stocks. My asset allocation did not align with the risk I was willing to take, which during corrections was hard to stomach!

Fortunately, the U.S has been in a bull market for the past decade and the technology sector has been one of the main driving forces. However, as we know all too well it’s near impossible to predict which asset class, region, sector, or specific stocks will do well over a short period of time. All you have to do is look at this chart showing the past 20 years of returns. Almost every year has a different highest performing asset class.

asset allocation
Source: MFS A Case for Diversification

Lastly, asset allocation shouldn’t be viewed on an account by account basis unless you have a specific purpose for a particular account. For example, retirement accounts for younger professionals should be geared towards more equities because we have such a long period of time until we’ll be divesting those funds. On the other hand, if you’re investing for a new home purchase or to start a business in 5 years, you probably want to allocate that particular account with less risk.

All in all, your investments should be viewed holistically, if you own a lot of international stock in one account, then it’s possible to gain more exposure to the U.S in an entirely different account. In the end, it’s all your investments anyways, regardless of which account they’re in!


The risk we take with our investments is directly correlated with our asset allocation. Obviously, if our asset allocation consists of 100% stocks, 100% in the U.S, and 100% in the technology sector, we’re taking on a tremendous amount of risk. More particularly, unsystematic risk.

Unsystematic risk, from an academic perspective, is risk that CAN be diversified away. Meaning the more non-correlated investments you add to your portfolio, the less risk your portfolio ultimately has, without necessarily giving up its potential for positive returns.

If bad news breaks for a stock in your portfolio, resulting in a 10% decline and you’ve diversified appropriately, it won’t result in a 10% decline of your entire portfolio. It’s important to be aware of the risks in your portfolio and how it would react to a market correction or even recession. If you’re unable to stomach 20% declines or NEED the funds in a short period of time, you should be taking risk off the table by diversifying and/or adding less volatile investments to your portfolio.

Largest Holding

Tying in with the prior two topics, knowing what your largest holding or investment is can be very important. Large holdings, or concentrated positions as they’re referred to, present greater amounts of risk. For investors who receive equity compensation from their company’s, oftentimes they’ll build a tremendous amount of risk due to a concentration in their company’s stock in their overall portfolio.

Your largest holding over time could also grow into an even larger portion of your asset allocation. For example, if you own Amazon stock as 20% of your overall portfolio, and it returns 20% over the course of the next year, it’s now likely consisting of greater than 20% of your portfolio, meaning your “risk” has gone up as well. Having the discipline to re-balance back to your original allocations and where you’re comfortable with the risk in your portfolio is key to long-term success. It also provides guidelines at which to purchase more investments at their lows and sell investments that have performed well at their highs.

Review your largest holding on a periodic basis and ensure you’re still comfortable with the percentage allocation it presents in the context of your overall portfolio.


Finally, the underlying reason we work, earn, invest, and save our money. What is the purpose behind it?

We contribute to retirement accounts such as 401(k)’s and IRA’s to set aside funds for future lifestyle expenses and so that we don’t have to work every day for the rest of our lives.

We set aside funds for starting a business or buying a home or a big annual vacation.

Whatever the purpose of your money is, it should be reflected in how you allocate your investments. If you need funds in the next year to launch a business venture, you shouldn’t be maxing out your cash flow towards contributing to retirement accounts. Rather, you should be setting funds aside in a savings account to have the cash available when you’re ready to launch.

The purpose of each individual investment account should drive everything else when it comes to designing a portfolio that can help you achieve your goals.

Need an investment portfolio review? Schedule a free consultation with me today!

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Levi Sanchez, CFP®, CPWA®, BFA™
Levi Sanchez, CFP®, CPWA®, BFA™
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, CERTIFIED PRIVATE WEALTH ADVISOR®, BEHAVIORAL FINANCIAL ADVISOR™ designee and Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. Levi’s been quoted in the New York Times, Business Insider, Forbes, and is a frequent contributor to Investopedia. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!

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