3 Ways to Simplify your Portfolio

Here are some simple investing strategies for those resolving to streamline their portfolios this year

Susan Dziubinski 16 February, 2021 | 9:58AM Lex Hall
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A new year is a common time for people to take on a new good habit (or two), and even if your New Year's Resolutions have already fallen by the wayside, you can still make positive changes. One easy task which will benefit your finance is to simplify your investment portfolio.

"Clutter in your financial life—like clutter on your desktop—has the potential to distract you from the main jobs at hand," says Morningstar director of personal finance Christine Benz. "You may not bother reviewing and maintaining your portfolio if it has too many moving parts."

So with that in mind, here are three ways you could potentially streamline your portfolio: 

Idea 1: Swap Active Funds for Trackers

Passive investments have no key-person risk, no strategy surprises, and arguably require less monitoring then their actively managed counterparts. The classic argument against a tracker fund, is you can't the market if you're copying it. But others argue that a shot at beating the market is not really worth the extra monitoring, and may not pay off anyway. 

There are passive funds in all of the main investment categories which are highly rated by Morningstar analysts, whether you're seeking growth or value stocks or a combination of the two, large or small companies, foreign stocks, and even bonds.

For UK investors looking for a broad exposure to their home stock market, for example, there is the Silver-rated SPDR FTSE UK All Share ETF (FTAL). Meanwhile, those looking further afield could access the US stock market through the Amundi S&P 500 Ucits ETF (500U) or gain exposure to Japan through the iShares MSCI Japan ETF (SUJA). Investors might prefer a more diversified option such as the iShares Core MSCI World ETF (SWDA), which offers exposure to the US, Europe, UK and more for just 0.2%. 

Sustainably-minded investors can also use tracker funds to meet their investment goals. The iShares MSCI USA SRI ETF (SUUS) targets companies with a reduced fossil fuel exposure, while the UBS World Socially Responsible ETF (UC44) uses a low carbon index to screen its holdings. 

Fixed income investors might select the iShares $ Corp Bond ETF (LQDA) for corporate bond exposure, or perhaps the Xtrackers II Global Inflation-Linked Bond ETF (DBXH) for inflation protection. 

Idea 2: Choose Broad Funds Over Niche Products

Experts have drummed into our heads the value of diversifying across different asset classes. After all, sometimes growth stocks will lead the market, while other times value prevails. Small caps have periods of outperformance over large caps, so be sure to own both, and international stocks can zig when the US market zags.

Those of us who've heeded that advice probably have dedicated large- and small-cap funds, individual value and growth funds, and perhaps even multiple international funds. But do we really need all of these building blocks, or can one or two broad-based funds do the job instead?

Of course, far-reaching index funds — including some of those already mentioned — can provide sufficient diversification. For instance, pairing Vanguard Total Stock Market with Vanguard Total International Index gives you exposure to a significant chunk of the global stock market. Just two funds, but plenty of diversification—and at a low cost to boot. 

Idea 3: Let a Fund Manager do the Hard Work 

The previous two ideas assume that investors want to retain control of their stock/bond mix, their so-called asset allocation. But for investors who would prefer to let someone else do the decision making, a multi-asset fund may be of interest.

Mutli-asset funds combine stocks and bonds in one portfolio, providing asset-class diversity in a single fund and thereby reducing the need for a lot of oversight. Cautious, Balanced and Adventurous labels indicate the proportion of the fund which is invested in the stock market to help you pick a fund which suits your risk tolerance.

A Gold-rated fund in the GBP Moderate Allocation Morningstar Category, for example, is the Vanguard LifeStrategy 60% Equity fund, a readymade portfolio that invests in other tracker funds including those which track the UK stock market, MSCI World and a global bond index. Meanwhile in the GBP Flexible Allocation category is the Trojan Fund, has around half its assets in equities and also holds gold, US Treasury bonds and UK government gilts. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Susan Dziubinski  Susan Dziubinski is senior product manager with Morningstar.com.

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