Is There Such A Thing As A Holy Grail Portfolio?

Jason Zweig had a two part blog post over the weekend titled Are You an Investor or a Speculator (part one and part two). One commenter noted that savers should be the third category. On a related note there was this article at Seeking Alpha where the author lays out his opinion about how to construct a four-ETF portfolio. While I don't agree with the four funds he chose there is an intellectual appeal to finding some sort of holy grail portfolio that only needs four or five holdings and very little work.

This is not reality in my opinion but it is interesting to keep looking.

At the other side of the scale was an article in Barron's over the weekend with details of a survey of various wealth managers about asset allocation. This PDF has the details, not sure if it requires a subscription to see it but it is a matrix with equities, fixed income and alternatives. Equities had three sub-categories like emerging, fixed income had four sub-categories like high yield and alternatives had five sub-categories including gold and private equity. There was also a category for cash.

Obviously there could have been more sub-categories for each asset class but in total there were 12 sub-categories. There are ETFs for all of them. Had there been 24 sub-categories there would have been ETFs for all of those but I doubt there would be much diversification benefit owning both an emerging market mid cap ETF and emerging market small cap fund.

In thinking about the extremes of a portfolio with so little granularity as to own just four funds versus one that splits just equities 15 different categories it is unlikely that either extreme will work for most people but they can be instructive in building and managing your own account.

An investor's portfolio should represent the time an interest he wants to put in to managing his assets. Someone who prefers to be more of a saver will likely be closer to the four fund portfolio than someone who wants to spend 20 or 30 hours a week, or more, on the task. The Zweig links touch on the idea of someone mislabeling themselves and the potential consequence especially if you think you are an investor but trade like a speculator.

Where I think this would manifest itself would be buying a stock for a shorter term trade (not necessarily a speculation but probably so), having the trade go bad immediately and then deciding to keep it as an investment. Of course there is no end to the possible examples here.

There is nothing wrong with any of the three labels and obviously any sort of portfolio can get the job done. Twenty four asset classes via ETFs may not be right for too many people but it will be the solution for someone.