Last time I wrote about a thesis for each holding. This is the next level up: a thesis for the whole portfolio.
A holding thesis answers "why do I own this company?" A portfolio thesis answers a bigger question: what is all of this for?
Why it matters
Without one, every holding gets judged on its own and every market scare feels like an emergency. With one, you can ask a calmer question: does this change what my portfolio is for? Often the honest answer is no.
Three questions
- What is this portfolio for? One sentence. Retirement. A house deposit. Income to live on. An SMSF paying pensions. Different jobs, different portfolios.
- When will I need the money? Roughly. A date or a range is fine. The answer shapes how a 20% fall feels and how you'll cope with it. That part is your call, not mine.
- What rules will I follow? A few rules for adding, trimming and selling, decided while you're calm. How often you'll review. The most any one holding can be of the whole portfolio. What you will and won't do when the market falls.
An example (made up)
This is a pretend portfolio, so nobody reads it as a recommendation.
- What for? A long-term portfolio for retirement.
- When needed? Not before about 2045.
- Rules. Review every February and August. No single holding bigger than a size I set in advance. I don't sell because of a headline or a bad month. I sell only if my thesis for that holding breaks, or if I need the money for the purpose above.
Yours will look different. The point is that it's yours, and it's written down.
How it links to your holding theses
Check each holding against it. A holding can have a good thesis and still not fit what this portfolio is for. That's worth knowing before the market tests it.
If it's an SMSF
Your fund's written investment strategy comes first. A portfolio thesis is a plain-English companion to it, not a replacement. If you're not sure how the two fit together, check with your accountant or adviser.
What it can't do
It isn't a forecast, and it doesn't tell you what to buy. It just means that when the market falls, you're deciding from a plan you made while you were calm.
In FolioTrack, this is the "Investment thesis" card on each portfolio, with saved history like the holding ones. It won't tell you what to buy or when to sell. It just helps you see your own reasons clearly.
So, what is your portfolio for? Could you say it in one sentence?
— The FolioTrack Team
General information only. Not financial advice. The example portfolio is made up.