Portfolio Design: Do You Want a Decorator or an Architect?
Most portfolios are decorated. Fewer are built by an architect. The difference shows up in the storm.
A decorator works the surface. They pick what looks good in the current light and refresh it when tastes change. An architect works the structure. Load paths, drainage, and how the building behaves under stress. The decorator is judged by how the room looks today. The architect is judged by whether the building is still standing in twenty years.
In portfolio terms, the decorator is the manager who tells you the trade for the next twelve months. Overweight this. Avoid that. The positioning shifts with whatever narrative is loudest. The architect builds something that works across a wide range of outcomes, regardless of which narrative wins.
Conceptual Illustration: Information presented in the above is for illustrative purposes only and should not be interpreted as actual performance of any investor’s account. As these are not actual results and are completely assumed, they should not be relied upon for investment decisions. Actual results of individual investors will differ due to many factors, including individual investments and fees, client restrictions, and the timing of investments and cash flows.
The decorator approach has a familiar rhythm. Read the headlines, take the position, and hope the call works. If it does, it’s brilliant for a quarter. If it does not, reverse the trade, eat the cost, and move to the next idea. Activity gets confused with progress.
The architect asks a different question. Not what is going to happen next, but what does the portfolio need to survive across the range of things that could happen. Equity exposure is sized to do the compounding. Defensive positions chosen because they actually defend. Tax efficiency is built into the foundation, not bolted on later. Behavior is designed in, so the investor does not abandon the structure when it is most needed.
Three questions tell you which kind of portfolio you own:
- Does it depend on a specific macro view to work? If yes, it is decorated.
- Does the defensive piece actually defend? Bonds in 2022 are the reminder. Stocks fell. Bonds fell more. The defense was a finish, not a foundation.
- Can the investor live with the structure across a full cycle? A portfolio that is theoretically sound but tough to hold will not survive a real drawdown.
A new generation of low-cost ETFs has put architectural building blocks on the shelf. With the proliferation of hedged equity and other options-based ETFs that can reshape the return profile and the tax profile of an investment, the tools are now available at a fraction of what they used to cost.
What’s often missing is the willingness to look at the foundation rather than change a few window treatments.
The finishes can stay, but the structure should be designed with long-term durability in mind.
The finishes can stay, but the structure should be designed with long-term durability in mind.
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Important Disclosures
The views expressed represent the opinions of Mendel Money Management, Inc. as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.
