Here are some misunderstood topics that can impact your portfolio and wealth.
Daniel Rustemeyer, CFP®
Daniel is an investment consultant in Vanguard Wealth Management. He specializes in portfolio construction, investment analysis, and collaborating on the rollout of ultra-high-net-worth products and services.
What to watch out for when making investment decisions
Over the years, Vanguard has served clients who have been successful at building an impressive financial portfolio and amassing substantial wealth. Despite the financial acumen that's led these investors to where they are, they might still have some misconceptions when it comes to portfolio construction. Let's examine some of the most common ones.
Set it … but don't forget it
While choosing an asset allocation and staying the course is wise, it doesn't always take the entire story into account. Once you select an asset allocation that aligns with your goals, it's also important to monitor and periodically rebalance your portfolio.
That's because over several years, market fluctuations may cause your original asset allocation to change. For example, a 60/40 portfolio (60% stocks and 40% bonds) may gradually shift to more investments in stocks than originally intended. Figure 1 shows how a portfolio with a 60/40 asset allocation can shift to 80/20 (80% stocks and 20% bonds) over 30 years if the portfolio isn't rebalanced. This may be fine if you're comfortable with the associated risk and a longer time horizon. However, it can be problematic if the money is earmarked for a specific purpose or if capital preservation is a priority.
Asset allocation of 60/40 portfolio never rebalanced vs. annually rebalanced
Notes: The 60% equity/40% bond portfolio return data are from December 31, 1989, through December 31, 2021. This figure compares the equity weights for never-rebalanced portfolios and portfolios rebalanced at the end of every year. The equity weight for the 60%/40% portfolio could drift between roughly 50% and 80% if never rebalanced. U.S. bonds are represented by the Bloomberg U.S. Aggregate Bond Index, non-U.S. bonds by the Bloomberg Global Aggregate ex-U.S. Index, U.S. equities by the Dow Jones Wilshire 5000 Index from the beginning of 1990 through April 2005 and the MSCI US Broad Market Index thereafter, and non-U.S. equities by the MSCI All Country World Index ex USA.
Sources: Vanguard calculations, based on Data from DataStream.
We sometimes see client portfolios that have a high (or sometimes exclusive) allocation of equities. Not rebalancing, as highlighted above, is one potential explanation for this. Another could be an inherent bias—many investors intuitively understand the stock market better than the bond market. Owning a portion of a company and understanding the financial and economic factors that might swing a stock price up or down can be more intuitive than owning a debt security and understanding something like the inverse relationship between bond prices and interest rates.
Over years and decades, it's easy to overlook which markets and industries your funds are invested in. Periodically checking your portfolio to ensure it's still aligned with your goals and risk tolerance can help set you up for investment success.
Don't fall for the illusion of diversification
Many clients believe that by owning shares of Vanguard Total Stock Market Index, Vanguard 500 Index, Vanguard Growth Index, Vanguard Large-Cap Index, and a Vanguard sector fund or ETF—like Vanguard Information Technology ETF—they're diversifying their portfolios. However, each of these has substantial investments in companies like Apple, Amazon, Microsoft, Meta, Alphabet, and others. By investing in several funds with similar exposure, clients make their portfolios more concentrated and less diversified than they'd originally intended.
Don't get blindsided by taxes
You may have heard us say that roughly 90% of a portfolio's expected return variability can be explained by the asset allocation.1 However, remaining diligent about the tax implications of your portfolio can be another key driver in achieving your investment goals.
For example, you might be retired and using your portfolio to supplement your lifestyle. Or you might anticipate impending changes to estate tax laws while trying to pass wealth along in the most tax-efficient way possible. In either case, your asset allocation has likely changed from when you first started investing. Nuanced topics like ordinary income versus capital gains tax treatment, tax-loss harvesting, gifting, and estate planning can all play an important role in determining how significantly taxes impact your drawdown or transfer strategies.
These are important topics to think about when forming a proper withdrawal or wealth transfer strategy—which is crucial to preserving the money you've worked hard to accumulate. After all, it's just as important to take the time and steps necessary to preserve your wealth as it was to grow it.
Don't pigeonhole your investments
Since Vanguard is best known for our low-cost index funds, you may not realize the full suite of investment products and services available to you. For investors with the appropriate risk tolerance, asset location (tax-deferred accounts vs. taxable accounts), and investing time horizon, our actively managed fund lineup is extremely competitive in the industry. Over the past 10 years ending on June 30, 2025, 88% of our actively managed funds outperformed their peer-group averages.2
Additionally, we offer other products and services tailored to meet the needs of Wealth Management clients. Depending on eligibility and suitability, you may have access to those listed below. To learn more, please contact your advisor or relationship team.
- Private equity funds: Private equity provides a unique opportunity to access a distinct and growing segment of global equities to support greater portfolio risk diversification with the potential for higher returns.
- Fully Paid Lending: Enrolling in the Fully Paid Lending program affords you the opportunity to generate additional passive income in your portfolio by lending your shares to Vanguard Brokerage while you maintain full economic ownership over your shares.3
Making these decisions and understanding their implications is no small task—but Vanguard can help.
If you prefer to manage the portfolio yourself, your relationship team can partner with you to find solutions for your unique investment goals. If you're interested in leveraging Vanguard's expertise and time-tested methodology, our wealth advisor executives will happily partner with you to provide customized recommendations. As Certified Financial Planner® professionals, they offer holistic financial planning that helps you rebalance your portfolio as needed, use tax-efficient strategies, and build your wealth for generations to come.
Interested in consolidating your assets to gain access to our exclusive services? Talk to your relationship manager today.
Already a Personal Advisor Wealth Management client and want to speak to your advisor about keeping your portfolio up to date?