Should you keep your asset allocation simple or make it more complex?

When it comes to building your investment portfolio, two main approaches often come up for discussion: simple strategies like target date funds or portfolios with just a few selected securities, versus more nuanced, complex asset allocation models. Each has its merits—and its challenges. Here’s what you need to know before choosing the right approach for your financial goals. 

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Why simple asset allocation strategies make sense

Simple strategies are popular for good reason. They’re easy to understand and easier to implement. Options like target date funds are designed to be hands-off. With a ‘set it and forget it’ model, these funds require minimal maintenance and align with your expected retirement timeline. For those not interested in target date funds, a straightforward 80/20 split between stocks and bonds, US and international or similar strategies allows investors to quickly start investing without extensive research or technical expertise.¹ 

These approaches are easy to explain because they rely on straightforward concepts that don’t require extensive technical knowledge. They are also easy to implement, as they involve clear, step-by-step processes that don't require advanced training or tools. That said, keeping your portfolio in a spreadsheet still requires manual work, and can lead to suboptimal outcomes. Even in a simple strategy, you may want to explore a portfolio tracker to replace spreadsheet.

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Why more complex strategies make sense

Often we have more assets than we realize. Target date funds and basic portfolios operate in isolation. They don’t consider external assets like your primary residence, RSUs from your employer, or investments in cryptocurrency. Ignoring these factors could skew your overall portfolio and tilt your risk exposure in ways you didn’t intend. For those in medicine or working in tech, their employer already leans their portfolio heavily to their respective sectors. Investing directly in the S&P500 may cause these investors to double down on their sector because of the overlap.

Additionally, for those who have researched asset allocation approaches, simple strategies don’t account for fine-grain factors, such as the split between U.S., international, and emerging market  stocks or large-cap versus small-cap equities. This lack of specificity can inadvertently expose you to unaccounted risks or missed opportunities.

Lastly, simple models can't adapt as your life changes—whether you receive a promotion with stock options, diversify into alternative assets, or need to rebalance for tax efficiency. They might lack the flexibility to grow with your evolving financial landscape. 

However, these complex approaches have two major drawbacks. (1) it requires education to determine what the right asset allocation is for your personal circumstances, and (2) maintaining a more complex asset allocation may require more overhead.

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Complexity doesn't have to come at a cost

Enrich provides a low-cost, subscription tool that provides the precision of advanced approaches, with the simplicity to implement basic strategies.² If you want to keep your portfolio simple, Enrich provides a 3‑fund portfolio tracker across multiple accounts as an investment spreadsheet alternative, and can scale to support a 50+ fund tracker as well.

How our technology bridges the gap 

• Portfolio customization
  Tailor your portfolio to include diverse assets—such as employer equity plans, cryptocurrencies, international equities, emerging markets, or industry-specific ETFs—while defining asset class percentages to align with your risk tolerance and return objectives.
• Holistic perspective
  Get a comprehensive view of your financial reality by factoring in your assets, including real estate, employer benefits, and individual stocks, to build an investment strategy that aligns with your goals. 
• Optimized risk management
  Track how each investment impacts your overall portfolio and risk-adjusted returns, allowing you to confidently oversee your wealth while managing both short- and long-term risks, even in shifting market conditions.³
• Easy maintenance
  Maintain your asset allocation with software that monitors your portfolio, identifies rebalancing opportunities, and evaluates tax-loss harvesting to reduce liabilities and improve returns.
• Simplified insights
  Our algorithms offer guidance on how to adjust your portfolio’s mix of assets to help you achieve a more balanced approach to risk and return, based on your current holdings and any specific restrictions. This can tailor your investments’ efficiency for the level of risk you’re comfortable with.³

That said, if you still prefer a simple asset allocation approach, you can still implement it in Enrich so you know you have the flexibility to go complex whenever you want at no additional cost.

By leveraging intuitive, user-friendly tools, you gain the control and transparency of a complex strategy, while enjoying the ease and peace of mind associated with a simple one.  So replace Excel investment tracking, and portfolio intelligence.

Footnotes

¹ Investing in the market involves inherent volatility and carries the risk of loss of principal.

² Enrich charges a flat $50/year or $5/month for each user; regardless of assets, number of accounts or number of goals set up in the app.

³ Our algorithm uses historical volatility, returns and beta to compute expected risk-adjusted returns. Past performance is not a guarantee of future performance.