Start with the purpose of the investment

A portfolio review should begin before looking at individual funds or securities.

The first question is what the capital is intended to do, for whom, over what period, and under which constraints. A written framework can make responsibilities, objectives, constraints, monitoring, and evaluation more explicit.

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Further reading: CFA Institute — Four Considerations for Strong Investment Policy Statements

The review lens

02. Constraints

Which tax, legal, regulatory, ethical, currency, concentration, spending, or ownership constraints should be visible in the framework? Which are binding and which are preferences?

01. Objectives

What is the capital intended to achieve? Is the priority purchasing-power preservation, future spending, a major obligation, long-term growth, or wealth transfer? Are there multiple objectives that should be separated?

03. Liquidity

Which capital may be required in the near term? What cash flows, commitments, or contingencies should be considered before less-liquid exposures are evaluated?

04. Time horizon

Are there immediate, medium-term, and long-term horizons operating at the same time? What does each horizon imply for volatility, liquidity, and the ability to remain invested?

Examine the portfolio structure

02. Diversification

Which risks are genuinely distinct? Which exposures may be driven by the same macroeconomic, factor, issuer, or liquidity risk? Correlation is a central determinant of portfolio risk; counting holdings alone is not enough.

01. Strategic allocation

What is the capital intended to achieve? Is the priority purchasing-power preservation, future spending, a major obligation, long-term growth, or wealth transfer? Are there multiple objectives that should be separated?

03. Implementation

Which products, managers, platforms, custodians, and service providers are involved? Are responsibilities, mandates, reporting, and potential conflicts understandable?

04. Costs

What are the direct and indirect costs across products, management, custody, platforms, transactions, foreign exchange, and other layers? Are the costs visible and comparable?

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Further reading: CFA Institute — Portfolio Risk and Return, Part I

Questions to carry forward

• Which assumptions are explicit, and which are implicit?

• Who is responsible for each decision and review?

• What would cause the framework to be revisited?

• Which risks would be most difficult to tolerate in practice?

• Does the level of complexity improve understanding or obscure it?

• Which questions should be taken to the relevant professional or service provider?

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This page provides diagnostic questions and only an informative review lens.

Explore objectives to asset allocation

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For informational purposes only. Our insights are not and should not be interpreted as investment advice or personal recommendations or any other form of advice.