What's Really Driving Your Portfolio Decisions?

**Mark Riepe** (0:10)
I'm Mark Riepe, I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision making and the cognitive and emotional biases that can cloud our judgment.
As I record this, North America is hosting the World Cup for Soccer. People who a few months ago didn't know a corner kick from a back heel pass are suddenly debating who's better, Ronaldo or Messi, or Argentina or France. And my personal favorite, the many, many reasons why the offside rule needs to be fixed.
The World Cup is a showcase for the elites of the sport, but they didn't get here by luck. They got here by perfecting the fundamental skills of the game, dribbling, passing, shielding. They trapped or collected thousands of passes. They made hundreds of penalty kicks. They developed their situational awareness. They practiced set plays to take advantage of particular circumstances in a game. And they drilled until every player knew exactly what to do and when to do it. In other words, they focused on the basics, the fundamentals of the game. And they did that because if you can't get the fundamentals right, it's hard to win.
What does all the soccer talk have to do with your financial life? Well, today's episode is about portfolios. And to improve your portfolio, it's important to focus on the basics of investing. Before I continue, let me say upfront that we're not going to talk in detail about choosing particular investments. No, we're focusing on the fundamentals of portfolio construction and the biases that can prevent us from making good decisions for our holdings. Here's a simple example. One way to build a soccer team is to just find the best players and send them out onto the field. The focus is 100% on the individual players, but that rarely works in team sports. Yes, you need good players, but they also have to be able to work together. When it comes to investing, we as individuals often focus on the details of the individual stocks, bonds, and ETFs that we own. But when we do that, we can be blinded to the portfolio as a whole. When we just look at pieces of the puzzle, that's called narrow framing. And when the frame is too narrow, then it can prevent us from choosing wisely. Narrow frames can be useful, but it's important to zoom out and look at the portfolio overall.
On that note, my guest today is Kasey McCurdy. He's our Chief Portfolio Strategist with Schwab Wealth Advisory. He focuses on investment management philosophy, asset allocation frameworks, and portfolio construction standards, among other things. He has an MBA and is a Chartered Financial Analyst.
Kasey McCurdy, welcome to the show.

**Kasey McCurdy** (2:43)
Thanks for having me, Mark.

**Mark Riepe** (2:45)
I assume you are a long-time listener and first-time caller.

**Kasey McCurdy** (2:48)
Absolutely.

**Mark Riepe** (2:49)
Would that be a fair description?

**Kasey McCurdy** (2:50)
22 years.

**Mark Riepe** (2:53)
Okay. Let's go. Let's dive right in here. One of the tricky things about portfolio management is that, at some sense, we all know that we should be taking action. Portfolio management, there's an active component to that, and it feels better, I think, in a lot of ways, to take action versus do nothing. How do you think about when you're managing a long-term portfolio, how should investors distinguish between when it makes sense to take action versus, hey, now's the time just to lie low, no reason to dive in just yet?

**Kasey McCurdy** (3:23)
The number one question that I feel like I field is, should I be taking action? The challenge that I often see is investors are confusing that action with progress. And so I'm always trying to help our clients understand that a good portfolio process is a much more important part of your plan than really just taking action at any moment. So the way that I think about this is it's really about what has changed in a client's life, more so than a headline that is driving the decision. So thinking about the goals that a client has invested in their plan, thinking about the time horizon that they're focused on, the cash flow needs, their risk capacity in taxes is often one that comes up. It goes on and on. But the idea there is that it's a lot of things that are focused on the individual rather than the market or the portfolio. I would frame it mostly as you mentioned action. Action, I feel like, is something that has a purpose or a reason. Meanwhile, activity tends to be more feelings based. It's a reaction due to an emotional change.