Model Portfolio

A model portfolio is a collection of investments created by a financial advisor to meet a client's goals.

Individual investors may find creating a portfolio from scratch intimidating. Some financial advisors can offer pre-built collections of investments, or model portfolios, to help clients get started with investing. Advisors will likely adjust model portfolios based on the clients’ goals and risk tolerance. They’re usually comprised of managed investment products like mutual funds or ETFs.

One of the main benefits of model portfolios is diversification. Advisors can create model portfolios that hold many different types of investments and investing strategies. Model portfolios are also effective for hands-off investors that want to invest but don’t have time for investment research. Advisors also rebalance portfolios to their original asset allocation, a task some individual investors struggle with.

Model portfolios can have their setbacks. The most important is that clients don’t have much control over the invested assets. Financial advisors or model portfolio managers make portfolio decisions. Another drawback is the management fees; the more decisions advisors make for their clients generally results in higher fees. And though experts create these portfolios, strong investment performance isn’t always guaranteed; even the best investors can find it difficult to beat the market.