Complex portfolios

Complex portfolios, by definition, consist of many different and connected parts and differ significantly from simple index portfolios.

More experienced (or sophisticated) investors may want or need to move beyond simple three, four or five-component exchange-traded fund (ETF) or index fund portfolios to build complex portfolios by including additional components; slicing and dicing existing components; or purchasing individual securities such as stocks and bonds. One popular addition to simple portfolios for some investors is dividend growth investing. Other investors may seek to diversify into further asset classes such as emerging market funds or ETFs, real estate investment trusts (REITs), high yield bonds, inflation-indexed bonds (Real Return Bonds (RRBs)), or even gold or commodities. The resulting portfolios may contain numerous asset classes and subclasses, and can be very individual in nature. This allows tailoring to meet the goals or preferences of an individual investor, but at the cost of additional complexity and, if security selection is performed, more frequent monitoring.

Adding components

See also: Home country bias, Tax-efficient investing, Risk and return, and Multifactor investing

In fixed income, one could wish to include:

• Inflation-indexed bonds, such Real Return Bonds (RRBs), to protect against unexpected inflation
• High yield bonds, which promise additional returns but have equity-like risks
• Currency-hedged foreign bonds from developed or emerging markets, to provide additional diversification in bond-heavy portfolios

In equities, possible additions include:

• Real estate investment trusts (REITs), which are often presented as portfolios diversifiers
• Preferred shares, which are taxed-advantaged in non-registered accounts relative to bonds

An investor might also consider:

• Gold, which can be held as coins or ETFs
• Other commodities

Slicing and dicing

Slicing and dicing refers to:

...dividing allocations within a given unitary asset class, such as stocks. Adding additional asset classes to a portfolio (bonds, gold, commodities) is asset allocation, not slicing and dicing.

In fixed income, nominal investment-grade Canadian bonds can be decomposed into:

• Short term, medium term, and long term
• Governement vs. corporate bonds
• Within government bonds: federal vs. provincial vs. municipal

In equities, possibilities include:

• Separating global equities into US, EAFE and emerging market equities, if not already done
• Tilting the portfolio toward value stocks and/or "small-cap" stocks

Security selection

• Individual bonds can be purchased instead of bond funds to better control the income stream, maturities, credit ratings, etc. in a bond portfolio.
• Stock picking, typically on the Canadian and US markets, can be performed in the hope of "beating the market", creating more income (obtaining a higher dividend yield), and/or diversifying between sectors in a different way than the Canadian index does. One popular stock picking strategy is dividend growth investing.

Need more information?

There is no standard or common complex portfolio, the possibilities are endless. This wiki is a collaborative work that is primarily based on the investing enthusiast members of the Financial Wisdom Forum (FWF). If you are seriously considering a complex portfolio, join FWF and discuss your ideas with like-minded individuals. Everyone will benefit.

See also

• Simple index portfolios
• Portfolio design and construction
• My Portfolio: Seeking Advice, an article that is intended to help investors request assistance from the FWF membership