Co-founder of Affari Miei
9 April 2024
What is a model portfolio? If you are looking for information on best model portfolio for investingthen you have come to the right place.
In this guide, in fact, we will see together what it means to invest with model portfolios and how to make the most of this opportunity.
Keep reading.
This article talks about:
What is a model portfolio
This definition refers to an investment portfolio constructed with asset class and that it has been developed on the basis of research and analysis methods.
At the end of this process you will have portfolios characterized by instruments with different degrees of riskwhich must be associated with profiles of investors.
In other words, it’s about baskets of securities, where the choice of securities and the weight of the asset classes is chosen in order to obtain different degrees of risk.
How many portfolio models are there?
There are various strategies for creating model portfolios, the most famous ones are inspired by the concept of lazy portfolio.
The ideal strategy is to minimize movements by setting up a portfolio that is able to cover all phases of the economic cycle: this in order to have greater resilience over time, even in the event of adversity.
A model portfolio, then, can have different degrees of risk, which can be measured above all by volatility: the greater the risk and, generally, the greater the equity component.
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Who invests via model portfolio?
Generally, this approach is well suited to those investors who want to purchase the instruments independently – after all, today it is very easy thanks to modern home banking systems – but want to have a guide to take inspiration from.
A model portfolio service generally has lower costs than traditional banking consultancy and allows greater room for maneuver for the customer who always has the final say on the allocation of his money.
It therefore represents the right compromise between autonomy and practical technical support.
Model portfolio vs banking consultancy
A model portfolio is made up of different instruments. The final result will be of different risk between the various portfolios and each of them can be associated with investors depending on their characteristics.
In fact, not all investors are the same: there are people who can invest large capital and others who have more modest ones, there are investors who have long-term goals and others who have some short periodand there are also differences related to risk that each of them is willing to run.
Let’s not forget that they change from person to person goals you want to achieve and maybe even personal preferences (maybe someone aims to buy tools that support innovation and technology, others I want to invest green and so on).
Can a bank provide this to you with its advice?
Item.
Although I respect those who work as banking consultants, it seems clear to me that these professionals cannot really provide a product to thisdesigned based on the needs of the investor.
Why? For the simple fact that the range of tools at its (and your) disposal are all from the bank itself (have you ever heard of an institute that recommends competitor products?).
Of course, the consultant will take into account your characteristics, the risk you want to take, your objectives… But we are really sure that the very tool that he will ultimately propose to you (taken from the range of banking offers) is the best on the market and the most suitable for you?
To learn more about this aspect, read the article dedicated to the topic of financial advice.
ETF model portfolio
Personally, since I have been investing, I prefer to adopt another strategy. I have always had a predilection for ETFs: I consider them more flexible, less onerous from a cost point of view, more interesting in terms of returns.
This is why in our club to invest Fast Investments Planner we mainly propose model portfolios in ETFsspecifically we have:
Low risk portfolio; Medium risk portfolio; High risk portfolio.
Model portfolio in stocks
Obviously ETFs are not the only path I take to invest and this is why there are also model portfolios in stocks.
Personally I think it is complicated, however, to invest in this way for a series of reasons:
Experience: buying individual shares is more complex and stressful than buying ETFs, it is certainly not suitable for novice investors;
Management: managing a stock portfolio is more expensive in terms of time to dedicate to rebalancing, i.e. periodic adjustments to be made, and can also be more expensive with the commissions of your platform although these have decreased on average in recent years;
Tax efficiency: ETFs allow you to defer the tax burden and take advantage of compound interestshares do not.
How to invest effectively with a model portfolio
Investing with model portfolios is the best strategy for those who want to have control of their investments but do not want to give up the independent qualified support of experts.
In practice, this is what our customers do who, independently, have their own securities account and make decisions based on the information in their possession and on that which we provide.
This investment method is particularly advantageous because:
it is disconnected from the traditional banking world and has no conflicts of interest: the supplier generally studies the markets independently and has no ties to the companies that create the financial instruments;
allows you to have greater autonomy: the investor can follow the indications he acquires by integrating them with his own experience and vision;
allows you to always have control of the situation: by having a securities account, everything is always accessible without having to delegate the management of positions to others;
it’s cheaper: bank asset management can cost up to 3% per year which, on a capital of 100 thousand euros, impacts 3 thousand euros per year. With a model portfolio the impact of commissions is reduced and this, with compound interest, significantly increases returns in the long term. Il our servicefor example, has a flat fee base: the higher the capital, the lower the cost impact.
There are various solutions on the market, regardless of what we offer, it is always a good idea to check:
who are the service providers: analyzing the CV and looking for opinions online can be a good way; what level of experience do the suppliers have: in our case, we are investors ourselves and we share our operations together with our studies; assistance service: although the model portfolios are designed for autonomous management, it is preferable to have some form of periodic assistance. We, for example, have a private club and also offer support services for the implementation of our studies.
To learn more about our model portfolios you can visit the service presentation article Fast Investments Planner.
Good continuation on Affari Miei.
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