Taking a One-Portfolio Approach to Your Investments
VOLUME 32
?
NUMBER 9
SEPTEMBER
2021
Sound Mind Investing
?
Financial Wisdom for Living Well
W W W. S O U N D M I N D I N V E S TI N G .CO M
Taking a One-Portfolio Approach to Your Investments
Mobile devices, online messaging, video calls, email¡ªall these technologies promised to save us time.
Instead, they¡¯ve raised our expectations about how much we can get done each day! Perhaps we should
heed the words of Leonardo da Vinci, who reportedly said: ¡°Simplicity is the ultimate sophistication.¡±
SMI can¡¯t simplify all of your life, of course. But if you have a complicated array of investment
accounts, we can help you organize them into a single, simplified portfolio.
by Matt Bell
One reason modern financial life can be so challenging is
that investors tend to have their money spread out. It¡¯s not
uncommon for a married couple to have one or two 401(k)
accounts, a couple of IRAs, and maybe more, especially if
they¡¯ve held several jobs and accumulated workplace retirement accounts at each stop along the way.
SMI believes the best way to approach investing is to think
of all your money as part of a single pot: one portfolio. But
what does that mean, and how do you bridge the gap from
having five investment accounts to making decisions as if it¡¯s
all a single entity? In this article, our goal is to cut through
the complexity and show you how to treat multiple accounts
as one portfolio.
The account/portfolio distinction
First, let¡¯s define our terms. For the purposes of this
article, an account is anywhere you have a sum of money invested. Your portfolio is the collection of all your investment
accounts, whether that¡¯s one or several. Yes, it¡¯s possible to
have more than one portfolio if, for example, you¡¯re using
one approach to save for retirement and another to save for
your kids¡¯ college. But we¡¯re going to keep things simple and
focus on your retirement portfolio.
If you only have one investment account, perhaps a single
IRA or 401(k), then for you, the words ¡°account¡± and ¡°portfolio¡± are synonymous. Your account is your portfolio and your
portfolio consists of your one investment account. Whatever
strategy or strategies you decide to use, you just allocate the
money in that single account as described in the strategy sections of the SMI website. Couldn¡¯t be simpler.
But what if your life is a bit more complicated? Imagine a
couple we¡¯ll call Mark and Martha Smith who have a 401(k)
and two IRAs containing $60,000, $80,000, and $100,000,
respectively. We recommend treating all of these accounts as
parts of a single portfolio. Doing so will minimize the number
of trades they need to make, saving time and money.
How this one-portfolio approach can be executed will depend on which investment strategy or strategies are chosen,
and the investment options available in each account. Here are
(continued on page 131)
the essential steps.
IN THIS
ISSUE
130 Editorial / The Heart of the Matter
134 Level 1 / Save Money Just By Asking
135 Level 2 / How to Panic-Proof Your Investing
136 Level 3 / A Great Strategy Gets Better: Inside Recent Sector Rotation Changes
137 Level 4 / The Risks of Using Dividend Stocks as an Alternative to Bonds
138 Basic Strategies 139 Upgrading: Easy as 1-2-3
140 New Stock Fund Recommendations 143 Premium Strategies 144 Performance Data
¡°FOR GOD HAS NOT GIVEN US THE SPIRIT OF FEAR BUT OF POWER, AND OF LOVE, AND OF A SOUND MIND.¡±
EDITORIAL
The Heart of the Matter
The new seventh edition of The Sound Mind Investing Handbook is hot off the press and now available (see page 133). And
while everything we say about it is true¡ªit does teach investing essentials in a clear, compelling way¡ªthe most valuable
part of the book, in my opinion, has nothing to do with that.
In the first five sections of the book, SMI founder Austin
Pryor does a terrific job of simplifying complex topics¡ªsuch
as how exchange-traded funds differ from traditional mutual
funds, why rising interest rates make the value of bonds decline, how to create a ¡°personal pension,¡± and how momentum
(the metric that guides SMI¡¯s main strategies) works. All of
these topics are crucial for investors to understand.
Still, I always recommend people skip ahead and begin the
book by reading section six: ¡°Investing That Glorifies God.¡±
There, you will find financial content unlike anything you¡¯ve
read before. Whenever someone asks me what it means to
invest from a biblical perspective, or how Christian investing
differs from secular investing, I point them to section six of
The Sound Mind Investing Handbook.
In the chapters that make up that section of the book,
Austin makes the case that investing that glorifies God acknowledges His sovereignty, values His majesty, advances His
kingdom, upholds His righteousness, seeks His wisdom, and
enjoys His blessings.
In one sense, it¡¯s an insightful Bible study that will help
you think about the intersections of faith and finances in a
way that differs significantly from most other stewardship
materials. Instead of focusing on biblical passages that speak
directly to financial topics such as debt and savings, this is
higher-level, heart-level content, delivered in the most compelling way possible.
Throughout those chapters, Austin candidly¡ªand often
humorously¡ªrelates his own faith journey. You¡¯ll read about
his early experiences as a commodities trader (you¡¯ll laugh out
loud at how he explains his ¡°heavy short position in frozen
pork bellies¡±), the ups and downs he experienced as a money
manager, and the financial and spiritual lessons he learned the
hard way. You¡¯ll learn about the surprising lunch engagement
that led him to start the Sound Mind Investing newsletter, and
why he risked so much to create a company that, against all
odds, has endured for more than 30 years now. You¡¯ll also find
out about his great hope that those who become SMI members
will grow¡ªnot just financially but in their relationship with
Christ and in the God-glorifying impact they have in the world.
In late 2011 and early 2012, as my wife, Jude, and I wrestled with and prayed through the opportunity to join the SMI
staff, reading Austin¡¯s story played an important role in our
decision to say yes. When I left corporate America in 2007, my
heart¡¯s desire was not to have a job but to pursue a mission of
teaching practical, life-changing applications of biblical money
management. By learning Austin¡¯s story, I gained a depth of
understanding about SMI that went beyond what I read on the
company¡¯s website. I saw clearly the mission-minded purpose
behind all that the company does¡ªand I wanted to be part of it.
Without section six, The Sound Mind Investing Handbook
would still be one of the best biblical financial stewardship
books I¡¯ve ever read, with a unique emphasis on investing.
With section six, it is all of that and one of the richest spiritualformation books I¡¯ve ever read.
While I¡¯m not so idealistic to think that anyone would become a member of Sound Mind Investing solely on the strength
of Austin¡¯s story, I think it is a valid factor that should be
considered. His story is woven into the company¡¯s DNA, exhorting all of us who serve at SMI to work from a core desire
to glorify God in everything we do.
If you are a current SMI member, you should know Austin¡¯s story, too. It will help you see¡ªand I trust, value even
more¡ªwhat sort of community you¡¯re part of. Yes, we want
your investment portfolios to grow so that you can experience the joy of providing well for your family and generously
supporting God¡¯s eternity-shaping work in the world. But our
hopes run deeper than that. We hope to play some small role
in helping you bring glory to God.
Of course, as Austin is the first to point out, section six of
The Sound Mind Investing Handbook isn¡¯t really ¡°his¡± story. It¡¯s
a portion of God¡¯s story that the Lord graciously chose to tell
through a son who received an inheritance, tried to find
his own way in the world, and then came
to his senses and found his way home.
MATT BELL
To God be the glory.
MANAGING EDITOR
NECESSARY CAUTIONS
It should not be assumed that all investment recommendations will necessarily
be profitable. The information published
in SMI is compiled from sources believed
to be correct, but no warranty as to accuracy is made. SMI is not responsible for
any errors or omissions. The counsel given herein is not a substitute for personalized legal or financial planning advice.
that they not attempt to do so over the
phone. If our staff is busy when you call,
you may leave your information on our
secure answering system.
130
CONTACTING US
Correspondence can be emailed to SMI at
help@. Our tollfree Reader Services line (877-736-3764)
is available for handling clerical matters
such as subscriptions, billings, newsletters not received, and changes of address. Please be advised, however, that
the SMI staff is not trained in matters of
personal counseling and it is our policy
WWW. ? SEPTEMBER 2021
COPYRIGHT
No part of this newsletter may be reproduced in any fashion without the prior
written consent of SMI. ? September
2021 by SMI, LLC. All rights are reserved.
POSTMASTER
Sound Mind Investing is published monthly
by Sound Mind Investing, 9700 Park Plaza
Ave Ste 202, Louisville, KY 40241-2287.
Periodicals postage paid at Louisville,
Kentucky USPS (006344). POSTMASTER:
Address changes to: SMI, 9700 Park Plaza
Ave, Unit 202, Louisville, KY 40241-2287.
This is Issue 375 ? Volume 32 Number 9.
Mailing date: 9/03/2021.
F E A T U R E
Taking a One-Portfolio Approach
to Your Investments
(continued from front page)
1. Determine your asset allocation. The starting point is to
figure out the best way to divide your money between lower-risk investments such as money-market funds and bonds,
and higher-risk investments like stocks. This depends on
your personal situation¡ªthat is, your investment time frame
and risk-taking temperament. The process for making this
asset-allocation determination is explained in the Start Here1
section of the SMI website. First, you take a risk temperament
quiz. Then you apply that result to a season-of-life allocation
table to find your suggested stock/bond allocation. (You can
skip this step if you are using the Dynamic Asset Allocation
strategy exclusively¡ªthe asset allocation decisions are built
into that strategy¡¯s process.)
Our hypothetical couple, the Smiths, are 15-to-20 years from
retirement and their investment temperament quiz showed
them to be ¡°Explorers,¡± which leads to a recommended allocation of 100% stocks.
2. Choose your strategy. Select the SMI strategy or strategies you would like to use. You¡¯ll find guidance in the Start
Here section of the SMI website. Below, we¡¯ll walk through
three examples based on various strategy choices an SMI
member might make.
3. Add and allocate. Add up the total amount of money
you have across all of your accounts ($240,000 in the Smiths¡¯
case). Then determine how much of this single pot of money
should be invested in each strategy and/or each specific fund
within each strategy. The examples that follow will demonstrate how to do this.
4. Execute. There are two keys here. First, begin with your
most restrictive account and look to see what your investment
options are. Some accounts, such
TABLE A
as workplace retirement plans, are
SMITHS' INVESTING
known for offering a limited array
ACCOUNTS
of investment choices. So start
401(k)
$60,000
there, seeing which of your needed
IRA #1
$80,000
funds (or recommended alternaIRA #2
$100,000
tives) are available.
Second, look to see if the balance
Total
$240,000
in any one account matches either
the total amount you want to allocate to a particular strategy,
or the amount needed for one or more of the funds used in
a strategy. It will simplify things if you can use a particular
account to fully execute one of your strategies or to fully invest
in some of the funds used in a strategy. If you found any of this
confusing, hang in there! These points will be made clearer by
the examples below. Let¡¯s start with a single-strategy approach.
Scenario 1: 100% Upgrading
In our first scenario, the Smiths want to use the Fund
Upgrading strategy exclusively. Upgrading with a 100%
stock allocation calls for investing in eight funds across three
categories (situational funds, small-company funds, and
large-company funds).
Using SMI¡¯s Fund Upgrading allocation calculator,2 the
start-here/ 2soundmindinvesting/resources#calculators
3These allocations were accurate as of September 2021.
A R T I C L E
Smiths enter the amount they want to invest ($240,000), then
select their season of life and investing temperament (as determined when they went through the Start Here section of the
SMI website). The calculator shows how their 100% stock portfolio should be allocated among the eight funds used in Fund
Upgrading 3 (see Table B¡ªthe slight shading on some lines is
solely for making the table easier to read).
In deciding which funds to buy in which accounts, they
follow the earlier advice to see how they can best utilize
their most restrictive
TABLE B
account¡ªtheir 401(k).
FUND UPGRADING
If that account offered
100% STOCKS
access to a ¡°brokerage
Situational Fund
$24,000
window,¡± the Smiths
Situational Fund
$24,000
would likely have
access to all the funds
Small Company/Active Fund
$24,000
needed to implement
Small Company/Active Fund
$24,000
all of SMI¡¯s strategies
Small Company/Index Fund
$24,000
(or suitable alternative
mutual funds if the acLarge Company/Active Fund
$24,000
count did not allow acLarge Company/Active Fund
$24,000
cess to exchange-tradLarge Company/Index Fund
$72,000
ed funds). However,
Total
$240,000
to make this exercise
more challenging and
realistic, we¡¯re assuming they don¡¯t have such access. Instead,
their plan offers 31 mutual funds.
Fund Upgrading uses two index funds, and fortunately,
most 401(k) plans offer index funds. Currently (September 2021), the strategy calls for a 10% allocation to a Small
Company Value index fund and 30% to a Large Company
Growth index fund. If the Smiths have access to such funds,
they could put $24,000 into the Small Company Value index
fund and $36,000 into the Large Company Growth index fund.
(If your plan doesn¡¯t offer such funds, it probably does offer
a Small Company index fund and a Large Company index
fund, which are acceptable compromises in this situation. So,
you could put $24,000 in the Small Company index fund and
$36,000 in the Large Company index fund.)
Now it¡¯s time for the Smiths to invest their IRA money
in the remaining funds. Note that the Large Company index
fund calls for an investment of $72,000. Since the Smiths
TABLE C
FUND UPGRADING USING 3 ACCOUNTS
Accounts ?>
401(k)
IRA #1
Situational Fund
$24,000
Situational Fund
$20,000
Small Company/Active Fund
Small Company/Active Fund
Small Company/Index Fund
IRA #2
Total
$24,000
$4,000
$24,000
$24,000
$24,000
$24,000
$24,000
$24,000
$24,000
Large Company/Active Fund
$24,000
$24,000
Large Company/Active Fund
$24,000
$24,000
Large Company/Index Fund
$36,000
$36,000
$72,000
Total
$60,000
$80,000
$100,000 $240,000
WWW. ? SEPTEMBER 2021
131
F E A T U R E
didn¡¯t have enough in their 401(k) to make that full investment, they¡¯ll use IRA #1 to finish that off. Then, starting at
the top of the table, they¡¯ll use IRA #1 to make as many of
the other investments as they can. In this scenario, they have
enough money in that account to put the full $24,000 in the
first situational fund, but only $20,000 of the needed $24,000
for the second situational fund. So, they¡¯ll move on to IRA #2
to finish that investment, while putting $24,000 in each of the
remaining funds (see Table C on the previous page).
Scenario 2: 50% Dynamic Asset Allocation, 50% Upgrading
Even though the Smiths¡¯ optimal asset allocation is 100%
stocks, they decide they want the peace of mind of knowing
their portfolio is specifically designed to weather the inevitable bear markets that hit stocks from time to time. So, under
this scenario, they split their portfolio evenly between Fund
Upgrading and Dynamic Asset Allocation (DAA).
Just as in the first scenario, the Smiths start with SMI
website¡¯s Fund Upgrading allocation calculator¡ªonly this
time they enter $120,000 (the portion allocated to Upgrading)
instead of $240,000. The top of Table D shows how they are to
divide that money across the eight Upgrading stock funds.
The lower part of Table D shows how they are to allocate
their remaining $120,000 using DAA. Since DAA calls for investing equal amounts
TABLE D
in only three funds at
50% UPGRADING / 50% DAA
any one time (of the
six monitored by the
Situational Fund
$12,000
strategy), that means
Situational Fund
$12,000
the Smiths will put
Small Company/Active Fund
$12,000
$40,000 in each of the
Small Company/Active Fund
$12,000
three funds.1
Following the
Small Company/Index Fund
$12,000
advice to look first
Large Company/Active Fund
$12,000
at their most restricLarge Company/Active Fund
$12,000
tive account¡ªtheir
Large Company/Index Fund
$36,000
401(k)¡ªwe already
know from Scenario 1
DAA: SPY
$40,000
that the Smiths can inDAA: EFA
$40,000
vest in the index funds
DAA: VNQ
$40,000
used in Upgrading.
Total
$240,000
So they invest in those
two funds as before
but reduce the amounts to account for the lower Upgrading
allocation in this scenario. This totals $48,000, leaving $12,000
in their 401(k) yet to invest (Table E).
Dynamic Asset Allocation uses exchange-traded funds
(ETFs), which typically aren¡¯t available within 401(k) plans.
However, the DAA funds are index ETFs, and four of the six
funds used in the strategy are commonly available within
401(k) plans in traditional mutual fund versions: SPY is simply
an ETF version of an S&P 500 index fund, EFA is a foreign stock
index fund, BLV is a bond index fund, and SHY is a short-term
Treasury index fund. The Smiths decide to put their remaining
$12,000 from their 401(k) plan into an S&P 500 index fund.
Next, they move on to their IRAs. With IRA #1, they finish
off the Fund Upgrading investments, putting $12,000 in each of
132
WWW. ? SEPTEMBER 2021
A R T I C L E
the remaining six funds. Then, because ETFs are readily available in IRAs, they invest their remaining $8,000 in the SPY ETF.
TABLE E
50% UPGRADING / 50% DAA
Accounts ?>
401(k)
IRA #1
IRA #2
Total
Situational Fund
$12,000
$12,000
Situational Fund
$12,000
$12,000
Small Company/Active Fund
$12,000
$12,000
$12,000
$12,000
Small Company/Active Fund
Small Company/Index Fund
$12,000
$12,000
Large Company/Active Fund
$12,000
$12,000
Large Company/Active Fund
$12,000
$12,000
Large Company/Index Fund
$36,000
DAA: SPY
$12,000
$36,000
$8,000
$20,000
$40,000
DAA: EFA
$40,000
$40,000
DAA: VNQ
$40,000
$40,000
Total
$60,000
$80,000
$100,000 $240,000
Moving on to IRA #2, they finish off their SPY investment
with $20,000 and then make each of the remaining DAA investments, with $40,000 going into EFA and $40,000 into VNQ.
Scenario 3: The 50/40/10 portfolio
For our final scenario, let¡¯s say the Smiths want to invest a
small portion of their assets in SMI¡¯s most aggressive strategy¡ªSector Rotation (SR). They allocate 50% of their portfolio
to DAA, 40% to Fund Upgrading, and 10% to Sector Rotation.2 For the Smiths, that means managing $120,000 with
DAA, $96,000 with Fund Upgrading, and $24,000 with Sector
Rotation. Using the Fund Upgrading allocation calculator, they
determine how $96,000 should be allocated across the eight
Upgrading stock funds. Table F shows that, as well as how
they are to allocate their money across the remaining strategies.
Again, as shown
TABLE F
in Table G, they first
50% DAA / 40% UPGRADING
address how to invest
10% SECTOR ROTATION
their 401(k), their least
Situational Fund
$9,600
flexible account. As
before, they have attracSituational Fund
$9,600
tive fund options for the
Small Company/Active Fund
$9,600
two index funds, and
Small Company/Active Fund
$9,600
an acceptable substitute
Small Company/Index Fund
$9,600
for SPY. They invest the
needed amounts there,
Large Company/Active Fund
$9,600
putting $9,600 into the
Large Company/Active Fund
$9,600
small company index
Large Company/Index Fund
$28,800
fund, $28,800 in the
DAA: SPY
$40,000
large company index
fund, and the remainDAA: EFA
$40,000
ing money they have
DAA: VNQ
$40,000
available in their 401(k)
Sector Rotation
$24,000
account ($21,600) into
an S&P 500 index fund.
Total
$240,000
1The funds used in this example aren¡¯t necessarily the three currently
recommended DAA funds. 2For more on 50/40/10, see April2018:Cover.
F E A T U R E
A R T I C L E
Next, they move on to IRA #1, putting $9,600 into each of
the six remaining Upgrading funds, $18,400 into SPY, and
their remaining $4,000 into the next DAA fund, which is EFA.
Then they use IRA #2 to make the remaining investment in
EFA, put $40,000 into VNQ, and make their $24,000 investment into the Sector Rotation fund.
TABLE G
50% DAA / 40% UPGRADING / 10% SECTOR ROTATION
Accounts ?>
401(k)
IRA #1
IRA #2
Total
Situational Fund
$9,600
$9,600
Situational Fund
$9,600
$9,600
Small Company/Active Fund
$9,600
$9,600
$9,600
$9,600
Small Company/Active Fund
Small Company/Index Fund
$9,600
$9,600
Large Company/Active Fund
$9,600
$9,600
Large Company/Active Fund
$9,600
$9,600
Large Company/Index Fund
$28,800
DAA: SPY
$21,600
DAA: EFA
$28,800
$18,400
$36,000
$40,000
DAA: VNQ
$40,000
$40,000
Sector Rotation
$24,000
$24,000
Total
$4,000
$40,000
$60,000
$80,000
$100,000 $240,000
Points to keep in mind
? Look for account consolidation opportunities before
you begin. Before taking a one-portfolio approach, see if you
can reduce your number of accounts by consolidating some.
The fewer accounts you have, the easier it will be to execute
a one-portfolio approach. For example, if you have a SEP IRA
that you¡¯re no longer contributing to and a Traditional IRA,
consider combining them into a single account.
? Strive for simplicity.1 If you want to take some small liberties with the amounts to invest in certain funds, that¡¯s fine.
For example, let¡¯s say you¡¯re using Fund Upgrading exclusively, and because of the amounts in your various accounts,
it¡¯ll be easier to match the account balances if you decrease
one category¡¯s allocation a few percent and increase another
category¡¯s allocation by the same amount. That¡¯s okay, as long
as the allocations don¡¯t veer too far out of alignment from the
recommended allocations.
? Strive for flexibility. Keep in mind that every SMI strategy (except Just-the-Basics) requires some trading during a
typical year. So, you¡¯ll want to make sure the account you
are using for a given strategy offers more than one fund used
in that strategy.
Let¡¯s say you want to use Fund Upgrading and DAA, and
one of your accounts is a 401(k) with a limited set of investment options. As demonstrated in the example above, use the
index funds available to you, trying to put all of your 401(k)
money to work that way before moving on to an account with
more options, such as an IRA.
? It may be emotionally challenging. The one-portfolio
approach is designed to make life easier by minimizing the
number of trades you have to make. However, this approach
may feel more challenging from time to time emotionally,
because the individual account balances may have greater volatility than your portfolio as a whole. For example, if you were
to hold all of your Sector Rotation allocation in a single IRA
account with your DAA and Upgrading holdings elsewhere,
that IRA balance may soar and plummet compared to the other
accounts because of the volatility inherent to Sector Rotation!
The solution? Just as the one-portfolio approach calls
for executing your strategy or strategies as if all of your
accounts were one, make sure to view your returns that way
as well. Several websites allow you to connect all of your
accounts and then view the returns as a total portfolio.2 You
can drill down into individual accounts as well, but start with
that big-picture view.
Final thoughts
To be sure, it will require effort to determine how to best
apply a one-portfolio approach across multiple accounts, and
it may take some time to get accustomed to the process. You
may need to map out two or three scenarios on paper before
you develop the approach that makes the most sense. But the
time you put into the process up front likely will save time and
money over the long term. ?
NOW AVAILABLE! A NEW, UPDATED EDITION OF
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Many people find themselves mystified by investing jargon and overwhelmed by a myriad of
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Previous editions of The SMI Handbook have helped more than 100,000 readers make the most of
what the Lord has entrusted to them.
Right now, we¡¯re offering the new-and-updated SMI Handbook at 20% off the $26.99 retail price¡ªwith
free shipping too! You can purchase the 350-page Handbook for only $21.59 ($22.89 for KY residents).
The Sound Mind Investing Handbook makes an excellent gift for newlyweds and graduates.
Order at handbook, or call 1-877-736-3764. To order by mail, send a check (payable to
Sound Mind Investing) to SMI, Book Order Offer, 9700 Park Plaza Ave Ste 202, Louisville KY 40241-2287.
1For
the ultimate in simplicity consider SMI Private Client, which can manage
multiple SMI strategies for you. . 2Aug2019:p119
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133
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