Portfolio Review: The 3 Problems We Usually Find
When we sit down with a prospective client for a second opinion, we see a lot of recurring themes. Multiple funds, a mix of accounts, individual stocks, and maybe some private deals their advisor told them were "exclusive opportunities." It looks sophisticated on the surface. Hopefully, it is constructed to meet your family’s goals. But, too often we uncover the same three problems that are costing people real money.
A quick reminder of what a sound portfolio should do: get close to S&P performance while taking on meaningfully less risk. That's it. You're not trying to beat the market, you're trying to keep pace with it without the volatility that makes people panic-sell at the wrong moment. As much as we are here for you technically, we are also here to be your emotional heavy weight.
Worth Knowing: The number of publicly traded companies has declined significantly over the past two decades. Peak to trough, that number has decreased by 50% from over 8,000 to under 4,000. Fewer companies are going public, which means the public markets capture less of total economic growth than they once did. Advisors know this, and some use it to justify pushing clients into private investments.
Source: https://tuck.dartmouth.edu/news/articles/where-did-all-the-public-companies-go
Problem 1: Fund expense ratios above 1%
These are the non-value added fees that you pay simply to hold a fund. In other words, they are unrelated to the fees you pay your advisor for advice and planning, you are being charged by a fund for your passive ownership of their position. The portfolio I reviewed most recently had multiple funds charging over 1% (some as high as 4%). That's not a small drag, it's a serious headwind that compounds against you every single year. In rare circumstances, these fees are charged for limited access to exceptional investment opportunities. But, we are always careful to review exceptions to the rule.
Remember, the goal is to match the S&P while taking less risk, giving you a greater risk adjusted return. Generally, any fees above 0.5% require a conversation, because these fees compound just like returns do, except they work in the wrong direction. This makes it difficult to pay for a risk-adjusted return that outperforms in the long-run. Usually, this is only the case in niche, complex, or inefficient markets where active investment management allows for genuine differentiation and risk management in volatile sectors.
Problem 2: Fund quantity masquerading as diversification
On the surface, a a large quantity of funds looks diversified. In reality, three or four funds often hold nearly identical underlying stocks. You aren’t spreading risk, you are paying multiple of the aforementioned expense ratios to own the same companies several times. True diversification is about asset class exposure, not fund count.
Problem 3: No tax strategy
Every account in your portfolio should not share the same allocation. If all of your accounts have 80% stocks and 20% bonds, it is probably because your advisor is not taking the time to build a tax-conscious portfolio. We discuss this concept in greater detail in our article on Tax-Aware Portfolio Construction, but in short, asset location is one of the most powerful and overlooked levers in long-term wealth building. If you are sensing a theme, it is that we at Hoeven we want to control the variables we can control for you, like expenses and taxes.
Placing the right assets in the right account type can meaningfully improve your after-tax returns over time. Bonds generating taxable income belong in tax-deferred accounts. High-growth equities with deferred gains belong in taxable accounts or Roth. This is foundational, but it's too often ignored.
A word on private investments: Some advisors will offer blanket private investment products as a solution to the shrinking public market opportunity. Be skeptical. Telling a founder or high-earner they're "missing out" on private markets is a classic FOMO pitch. There are legitimate private opportunities. But they require careful evaluation, not a standing allocation your advisor auto-populates.
What to do
Start with a portfolio audit. Pull every fund, every account, every fee, and ask three questions:
What am I paying in total expense ratios, and what am I getting for it?
Do my funds actually hold different assets, or am I paying for the same positions twice?
Is my account allocation the same everywhere?
If you can't answer these questions clearly, it highlights a gap in how your portfolio was built and communicated to you. The good news is, these problems are fixable.
If you'd like a second set of eyes on your portfolio, reach out for a complimentary review at the “Schedule a Meeting” button above.
Disclosure:
The information presented in this article is intended for general educational purposes and should not be interpreted as individualized financial, investment, tax, or legal advice. Any hypothetical examples, scenarios, or illustrative anecdotes are used strictly to demonstrate financial planning concepts and do not reflect all client results. Because each person’s financial situation is unique, the strategies or ideas discussed may not be appropriate for your circumstances. As an investment adviser representative of a registered investment adviser, we act in a fiduciary capacity and provide advice tailored to each client’s objectives only after adequate understanding of the client’s situation. Before making any financial decisions, please consult with your adviser or another qualified professional.
Neither Hoeven Wealth nor XY Investment Solutions provide tax or legal advice. The tax and estate planning information offered is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
