As an ER doc and birdwatcher, I find that the breadth of human behaviors have a great deal in common with the variety of birds.
Many years ago I enjoyed explaining to a faculty interviewer at a residency program that a short observation period, applied pattern recognition and a need to think quickly on one's feet are inherent to both pursuits.
This is the point in the narrative where you justifiably begin to sweat a little. Is this a prelude to describing all the stuff he's seen people put in their butts over his career as an ER doctor?
Fear not, dear reader. I ask only that you indulge a few observations of the variety and range of portfolio complexity I've seen.
I do, however, have some difficult news for you: your portfolio may not be as different as you think.
A Taste Of Everything / Slice And Dice
There's a trend I've observed with new financial literacy zealots. They want a portfolio that includes a taste of every item on the investing menu, and they end up with a Bento box of assets. Small cap value? Let's place a little bit in here, next to the fried, breaded vegetables. Gold? It's under the sticky rice.
The problem with an extreme slice and dice portfolio in a taxable account can be encapsulated in a simple bit of fortune cookie wisdom:
Enthusiasm for complexity wanes with age, but a low basis taxable investment is forever.
Starting out with a highly complex portfolio might saddle you with your investments for years to come due to reluctance to sell and incur capital gains tax. Such orphan investments (assets left over from abandoned investment strategies) become a smaller proportion of your portfolio over time, as your investing plan coheres into something you can stick with.
Anecdotal observations of fellow DIY investors who are further along their investing journey suggests that many investors tend to adopt a less complex portfolio over time as their willingness to accept hassle decreases. My experience dovetails with these observations.
The Majesty Of Simplicity
The Bogleheads (a group that is less monolithic than it might appear) endorse low cost passive indexing through as few as 2-3 index funds in order to produce good enough investing returns with a minimum of hassle.
Critics are quick to point out the flaws inherent in such strategies, but this investing approach nonetheless remains popular with many investors and retains the benefit of being relatively easy to execute and easier still to hand off to a spouse in the event that the financially interested partner dies first.
Set It And Forget It
From the one fund to rule them all fans come target date retirement funds and balanced funds.
The former use a dynamic asset allocation that changes over time with increased equity exposure early, and increased bond exposure as the target date approaches to reduce sequence of returns risk.
The latter automatically rebalance to maintain a static asset allocation over time, such as 60/40 stocks to bonds. Mike Piper, a.k.a. The Oblivious Investor, is a thoughtful guy who has decided to take this route.
Again, these strategies tend to be easy to hand off to a financially disinterested spouse in the event that you predecease your partner.
Mature Complexity
There's a small subset of investors who enjoy the intellectual exercise and problem-solving that investing requires, and who use it as a constructive hobby - a way to stay off the streets and out of gangs. These folks are often former engineers by training, people who enjoy the math and never back down from challenges with uncertainty. They love to model and minimize risk. They make great teachers, but few disciples can easily follow their lead.
The need for complexity in these cases needs to be balanced with the need to hand off to a less financially engaged partner. Often, arrangements are made with a third party, either a trusted relative or a financial advisor, to step in and act as a fixer as soon as the financially engaged spouse dies to prevent the surviving spouse from making financial mistakes.
What's your preferred level of portfolio complexity?