Only One Fund? That's Crazy!

A simple portfolio still works.

A couple of weeks ago I wrote about the recently launched Cambria Trinity ETF (TRTY), saying it was the multi-asset fund I'd build for myself, or at least the closest one on the market to what I would build for myself. A couple of days ago, Cambria founder Meb Faber disclosed that he was putting most of his stock market portfolio into the fund. The title of his post implies that he thinks people might be surprised he's putting so much into one fund.

I have always bought into the idea of making investing as simple as possible. The relative simplicity of your portfolio has to boil down to your interest level and how much time you are able to spend on your investments or want to spend on your investments. I've written several posts lately about two or three fund portfolios. While I do not think they are ideal, they absolutely can get the job done provided someone has an adequate savings rate and doesn't make some sort of catastrophic behavioral mistake. A high savings rate and avoiding mistakes are important for everyone.

If a portfolio of one broad based stock fund and one broad based bond fund can get it done, then a portfolio consisting of one multi asset fund that includes alternatives can also get the job done. Target date funds are designed with that idea in mind, I just think they are so flawed that I would avoid them if at all possible.

One thing that is crucial to understand about a portfolio consisting of one or two funds, or even three funds, is that you're very unlikely to ever "beat the market." Beating the market is far more about ego than actual financial need. A portfolio consisting of more holdings (a mix of funds and stocks) will have at least a few years that it outperforms along with some years that it lags. The thing that matters is staying on a path toward being able to maintain your lifestyle if you stop working with a portfolio that can sustain over the time that you need it.

When you're 83 and healthy, all that will matter is whether your portfolio is still reasonably well intact offering a path sustainability. You investment performance in some random quarter or year from your past won't matter at all at that point. A little question I like to pose in this context is to say "quick, without looking, what the stock market do in the second quarter of 2016 and how'd your portfolio do?" No one knows, because it doesn't matter. What matters is your long term path/result.

How old are you now? Do you plan on retiring? If so, will you need to draw on your savings/investments as part of your income picture? If so, how much might you need from your portfolio? Where is your portfolio today then in relation to where it needs to be to meet what you think the income need will be? However you answer those questions about where you stand today, how important is your past performance? Regardless of whether it was good or bad, that is your reality, that you need to live with and manage going forward. Hopefully anyone reading this has had good returns and is at least a little bit ahead of where they should be based on their age and time horizon.

A portfolio consisting of just one fund or two can get you most of the way to where you need to be if not all the way. I think this is especially the case for someone who is a little younger. It is just about accumulation and growth. At some point, like maybe around 55, you are going to need to spend a little more time on your financial situation (investment portfolio and retirement plan) or pay someone to do it for you. There is too much that you can get wrong to not invest more time into it.

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