Putting the Portfolio MRI in Context

The Portfolio MRI is part report card and part recipe book. It breaks down information about your investments and stacks them up against inflation-adjusted historical data reflecting different asset mixes, funds, indices, etc. I like to walk through the Portfolio MRI with my clients step-by-step. I want everyone to understand the logic behind the investment choices they are making, and how their portfolio fares in terms of the five rules of investing. By looking at your portfolio over time, we can see how closely it adheres to the fundamental rules of investing. Let’s review them:

1. Don’t Try to Time the Market
2. Buy and Hold
3. Diversify Broadly
4. Reduce Your Costs
5. Don’t Buy High and Sell Low

The Portfolio MRI will also measure the historic volatility of your portfolio and give you an idea of the historic volatility and performance of different asset classes. That allows us to estimate the risks you are taking relative to the returns you’ve seen, and compare your portfolio’s performance to the performance of other benchmarks over similar time periods. Not only can we assess how well the volatility we see matches up with your risk tolerance, but we can also determine whether alternatives asset mixes would be likely, based on historical data, to reduce volatility or yield higher returns (or both!).