Who’s Occupying Your Portfolio?

Posted on October 20, 2011 at 9:34 AM PDT by

The Occupy Wall Street movement has become a topic of national discussion.

Camped out in lower Manhattan for over a month, the protestors have spawned copycat events across the nation and abroad. While some identify with the frustration of youth trying to break into a job market that supplies a meager one job for every five seekers and a youth unemployment rate of 18 percent, others take issue with the movement’s anti-capitalist hysteria that seeks to penalize hard-working and productive Americans.

So what’s the fuss?

Behind all the brouhaha, however, there are some very real frustrations that all Americans, left and right, can identify with. How is it that politicians and bankers were in cahoots creating loose-money legislation and convoluted debt-backed securities that in turn were sold to the unsuspecting? How is it that trillions of dollars of government debt in the form of TARP, QE1, QE2, and beyond have been placed upon the shoulders of future generations to somehow resolve? How is it that some of the very bankers who were complicit in this disaster that destroyed the financial lives of millions of hard working citizens in turn made off like bandits? How is it that the Feds have embraced an inflationary exit strategy that threatens every hard-earned dollar you have saved and invested?

While protestors and non-protestors alike seek to place the blame for this travesty at the right doorsteps, these protests expose some deep assumptions about what is owed to us as citizens. These assumptions, once exposed, reveal some important lessons on investing as well.

Many of the protestors believe that they have a right to a well-paying job. And why should they not expect this basic opportunity? It has been the inalienable right of every American generation to date, spare the Great Depression, and therefore is deeply embedded in the warp and woof of the American mind. This assumption, however, is proving to be ill founded. While much of the third world can only dream of the minimum wage opportunities America affords, we have come to expect a middle-class life as a fait accompli for most, or at least the college educated.

The new reality is that the middle class is shrinking before our eyes as jobs flee to other nations whose middle classes are emerging. And gone the way of the shrinking middle class is the shrinking American Dream. Once assumed to be on tap for all hard-working citizens, this fount of prosperity and success seems to be running dry for many.

Who’s occupying your portfolio?

The new realities are just now beginning to sink in for many investors. You deserve nothing. Times have changed. You can’t just waltz your way into the American middle class anymore. You can’t rely on being a benefactor of past generations. The middle class is shrinking, and many who fail to work harder and invest smarter will be moved out while others in the world economy are invited in.

Additionally, you cannot look to Wall Street or the U.S. government to look after your retirement. It appears that Social Security will eventually fail. When it comes to The Street, we now know that many money managers will work to their own benefit, and if you happen to benefit along the way, you lucked out. If not, it’s your tough luck.

The critical question for today’s investor is, “Who is occupying my portfolio?” Is it an investment advisor? A fund manager? A small selection of equities and thus a small sample of fallible corporate directors and executives? When you look into the virtual room of your own portfolio, do you find yourself both present and vigilant? Sadly, many will find themselves strangely absent. Often it is because they are fearful of getting it wrong. Whether you are a do-it-yourself investor or an investor who delegates his funds to a professional, your presence in knowing what is in your portfolio, both in terms of fees and investment vehicles, and why is critical.

Additionally, at times such as these, the beauty of index investing is revealed. You can remove the advisor risk. You remove the money manager risk. You remove the individual corporate corruption risk.

You enjoy spreading your bets broadly across hundreds if not thousands of companies and are left to focus on what matters most in portfolio management—asset allocation. Now it is up to you to get globally allocated, remain disciplined with rebalancing, and behave like an adult managing something of great importance.

In the end, some may choose to set up camp in a tent, point a finger, and occupy Wall Street. I suggest you occupy your portfolio instead.