All seven MAXadvisor model portfolios have had great years, but they won’t make any of our subscribers any money if nobody actually invests in them. To make the model portfolio investing process as easy as possible, we’ve developed this short guide. If you have a question about getting started tracking our model portfolios that isn’t answered here, please contact us. We’re happy to help!

The MAXadvisor newsletter was conceived a tool that would offer investors an easy way to build low-cost, well-diversified mutual-fund focused portfolios with attractive risk/reward profiles. Many investors make the same mistakes again and again when building an investment portfolio. They buy stocks and funds for exactly the wrong reasons. 

Their portfolios are nothing more than a collection of obscenely expensive funds they purchased after a period of hot performance, They may have bought them, because they were highly rated, or because a broker told them to, or because they were touted as the top funds for the year in the newspaper. 

This, needless to say, is not a smart way to allocate a portfolio. Too many investors end up with dozens of investments that lack any real portfolio structure or diversification. Often they wind up with a collection of very similar funds (bad for diversification) or worse, they buy them shortly before they all fall out of favor. Many portfolios we’ve analyzed have been wildly inappropriate for an investor’s desired risk level.

While you certainly don’t have to follow one of our model portfolios to make MAXadvisor worth your while– some subscribers use the service to find funds in categories they want to invest in or simply get investing ideas from our commentary – the central focus of the newsletter is our seven model portfolios. Each of them is designed by us to be well diversified, low-cost, and risk appropriate.

Follow the model portfolio that is appropriate for your risk level, and you’ll have a great investment portfolio for years to come. 

Here’s our step by step guide to get you started: 

<b>Step 1 – Choose a Portfolio</b>

We provide seven model portfolios: five are core portfolios designed for a range of individual risk levels, and two “special purpose” portfolios.

Most investors will find one of the five core model portfolios, which range in risk from extremely low-risk (our Safety portfolio), to very aggressive (our Aggressive Growth portfolio), to be right for them.

Please read our guide to determining your risk level and identifying the appropriate model portfolio by <a href="https://maxadvisor.com/newsletter/mprisklevel.php">clicking here</a>.

One way you should NOT choose a portfolio to track is to look soley at performance figures. Markets have been strong over the last year, and many of the fund categories we picked have done very well. The fact that our Aggressive Growth portfolio gained more than 43% in one year does NOT mean it is better than our Conservative portfolio, which gained 18.3%.

We do everything we can to limit downside risk in all our portfolios, but while our higher risk portfolios will gain more in up markets compared to our more conservative portfolios, they will also loose more in down markets. From the beginning of April 2002 to the end of September 2002, markets were weak – the S&P500 fell 28%. Our Aggressive Growth portfolio dropped 18.8% during this timeframe. Our Conservative portfolio retreated just 4.6%. 

While everybody on Wall Street wants you to focus on how much you can make when investing, we think you need to understand how much you can lose as well. Here is our current estimate of what investors can expect to lose, absolute worst case scenario, in a single very bad year, and what you can expect to earn in a best case scenario year. Choosing appropriate investment is all about understanding risk. We can’t put the risks of our model portfolios any plainer than we have in this table. The most important column is the one that defines the portfolio’s worst case scenario year. If you can’t stomach the idea of loosing that amount, you shouldn’t be investing in that portfolio.<center><table border="0" cellpadding="0" cellspacing="0">

<tr height="2"><td bgcolor="#636531" width="2" height="2"></td><td bgcolor="#636531" width="100" height="2"></td><td width="2" bgcolor="#636531" height="2"></td><td bgcolor="#636531" width="60" height="2"><img src="../../images//space.gif" width="50" height="2" border="0"></td><td width="2" bgcolor="#636531" height="2"></td><td bgcolor="#636531" width="60" height="2"><img src="../../images//space.gif" width="50" height="2" border="0"></td><td width="2" bgcolor="#636531" height="2"></td></tr>

<tr bgcolor="white"><td bgcolor="#636531" width="2"><img src="../../images//space.gif" width="2" height="20" border="0"></td><td bgcolor="#cfcf9d" width="100"><div align="center"><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">Name</font></div></td><td width="2" bgcolor="#636531"></td><td bgcolor="#cfcf9d" width="60"><div align="center"><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">Best Case </font></div></td><td width="2" bgcolor="#636531"></td><td bgcolor="#cfcf9d" width="60"><div align="center"><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">Worst Case </font></div></td><td width="2" bgcolor="#636531"></td></tr><tr height="25"><td bgcolor="#636531" width="2" height="25"></td><td width="100" height="25" bgcolor="#f0eec5"><div class="class"><div class="black"><div align="center"><p class="black"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><a href="../mpsholdings.php"><span class="class"><span class="black">Safety</span></span></a></b></font></p></div></div></div></td><td bgcolor="#636531" width="2" height="25"><img src="../../images//space.gif" width="2" height="20" border="0"></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">15%</font></div></td><td width="2" bgcolor="#636531" height="25"><img src="../../images//space.gif" width="2" height="20" border="0"></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">-10%</font></div></td><td width="2" bgcolor="#636531" height="25"><img src="../../images//space.gif" width="2" height="20" border="0"></td></tr><tr height="25"><td bgcolor="#636531" width="2" height="25"></td><td bgcolor="#cfcf9d" width="100" height="25"><div class="black"><div class="class"><div align="center"><p class="black"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><a href="../mpcholdings.php"><span class="black"><span class="class">Conservative</span></span></a></b></font></p></div></div></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#cfcf9d" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">25%</font></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#cfcf9d" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">-15%</font></div></td><td width="2" bgcolor="#636531" height="25"></td></tr><tr height="25"><td bgcolor="#636531" width="2" height="25"></td><td width="100" height="25" bgcolor="#f0eec5"><div class="black"><div class="class"><div align="center"><p class="black"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><span class="black"><span class="class"><a href="../mpmholdings.php">Moderate </a></span></span></b></font></p></div></div></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">35%</font></div></td><td width="2" bgcolor="#636531" height="25"><div align="center"></div></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">-20%</font></div></td><td width="2" bgcolor="#636531" height="25"></td></tr><tr height="25"><td bgcolor="#636531" width="2" height="25"></td><td bgcolor="#cfcf9d" width="100" height="25"><div class="black"><div class="class"><div align="center"><p class="black"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><span class="black"><span class="class"><a href="../mpgholdings.php">Growth</a></span></span></b></font></p></div></div></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#cfcf9d" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">45%</font></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#cfcf9d" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">-25%</font></div></td><td width="2" bgcolor="#636531" height="25"></td></tr><tr height="25"><td bgcolor="#636531" width="2" height="25"></td><td width="100" height="25" bgcolor="#f0eec5"><div class="black"><div class="class"><div align="center"><p class="black"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><span class="black"><span class="class"><a href="../mpagholdings.php">Agg. Growth</a></span></span></b></font></p></div></div></div></td><td bgcolor="#636531" width="2" height="25"><div align="center"></div></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">50%</font></div></td><td width="2" bgcolor="#636531" height="25"><div align="center"></div></td><td bgcolor="#f0eec5" width="60" height="25"><div align="center"><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">-30%</font></div></td><td width="2" bgcolor="#636531" height="25"></td></tr><tr height="2"><td width="2" bgcolor="#636531" height="2"></td><td bgcolor="#636531" width="100" height="2"></td><td width="2" bgcolor="#636531" height="2"></td><td bgcolor="#636531" width="60" height="2"></td><td width="2" bgcolor="#636531" height="2"></td><td bgcolor="#636531" width="60" height="2"></td><td width="2" bgcolor="#636531" height="2"></td></tr></table></center><br />

<font size="1"> Note: Our worst case scenario is based what we would expect to happen in a hypothetical year during which the market as a whole declined more than 35%. Our portfolios are more diversified than a U.S. stock market index, and hence should not drop as much as the market in bear markets.</font>

Our two special purpose products are the Daredevil and the Low Minimum portfolio. 

The Daredevil is our highest risk portfolio. It is our most actively traded. It is not a core portfolio so much as one for investors with a certain percentage of assets they can afford to put at risk, and who are less concerned with building a steady, diversified portfolio. While even the Daredevil portfolio is diversified to an extent, it is not appropriate for most MAXadvisor subscribers.

The Low Minimum portfolio is for investors who have less money available to invest, but who still want to have a well-diversified portfolio. It’s perfect for new investors and for those who do not have large accounts outside of their 401(k). The risk/reward profile of the Low Minimum portfolio is similar to the Moderate portfolio.

<b>Step 2 – Build Your Fund Portfolio</b>

We've taken several steps to make building our model portfolios in your own brokerage account as easy as possible. First we choose mutual funds that most everyone can invest in. This means no funds with $50,000 minimums, and few funds that are not available at most popular discount brokers. Still, following our portfolios can be thorny. Here are some guidelines and information to help you get going.

Turnover: We do not trade our model portfolios frequently. You won’t have to log in to your online trading account every other day if you invest in a newsletter portfolio. We don’t ask you to follow some bewildering market timing scheme. At MAXadvisor, we tend to make shifts in allocation for the long haul. When we do trade, it is usually to lighten up on areas that are overheated in favor of areas that are out of favor or have reasonable valuations given our estimates for the future. These are not frantic month to month trades. The funds we buy remain in our portfolios until we think the fund has changed in a way that will hurt future returns (i.e., a talented manager has left the fund) or we no longer want exposure to that area of the market. 

Platform: While you can buy all the funds in our model portfolios directly through the fund companies that run them, that process can be slow and inefficient. We recommend going with a mutual fund supermarket at a discount broker. 

Unfortunately, there are compromises to any fund supermarket, not the least of which is costs. In recent years many of the most popular fund supermarkets like Schwab, TD Waterhouse, and Fidelity have raised fees. 

While all of these brokers offer a good selection of funds for NTF or “no transaction fee” (which usually means the fund pays them for you out of higher annual expenses) they are charging more then ever to buy low-fee funds like those from Vanguard and Dodge & Cox.

We recommend going with Scottrade, which does not charge any fees for buying any mutual funds on their supermarket (they have a low short term trading fee) or E*Trade, which charges lower fees than most for non-NTF (no-transaction fee) funds and now even kicks back to investors some of the hidden fees high-fee funds pay them. Both have benefits and certain minor negatives, but are significantly cheaper today than the well known big three. 

To NTF or not to NTF?: That is the question. Almost every fund in our model portfolios are available on the Scottrade’s no-transaction-fee network. That means you won’t pay a dime to buy or sell them. Hence, the easiest and cheapest way to build a MAXadvisor model portfolio is to do so at Scottrade. You’d think Scottrade would be paying us for sending so much business their way – but they don’t. Currently Scottrade simply has the most funds available without a fee. If that changes, so will our recommendation.

Investors at other brokers will find that some of our funds are NTF and some are not. If you don’t currently have an account at Scottrade and don’t wish to establish one, you might have to pay a fee to purchase some of the funds in our model portfolios. Should you buy the non NTF fund? That depends on how much you are buying and how much they charge. For example, if you are putting $50,000 into the Vanguard Health Care fund and E*Trade is going to charge you $24.95, the $24.95 represents only a small percentage of the overall investment and is worth paying. If you are going to buy $10,000 wroth of the Dodge & Cox Stock fund at Schwab and get charged up to $70 for the privilege (or .70%) once on the buy and again on a future sale, you should think again. Sometimes the fees charged by the broker are still less than the extra costs in buying a higher fee NTF fund - you just don’t see the bill.

In such a case, either buy the fund elsewhere (like direct at the fund family or at a lower cost discount broker) or chose another fund. If a fund in our model portfolios is unavailable to you because of a high transaction fee, it’s generally ok to replace it with one of the funds Our Favorite Funds lists from the same category.

Believe it or not, our returns come as much from proper diversification and asset selection as from our specific fund choices. If your portfolio is diversified in the same categories as our model portfolios, you’ll do fine – even if you’ve had to consult Our Favorite Funds lists for a substitute or two. 

<b>Step 3: Trading</b>

On the model portfolio page the ‘changes’ tab is where you’ll find pending trades (we post upcoming trades here before we make them so investors will be prepared), and a list of trades we’ve made to each portfolio in the past.

When we do make a trade in a model portfolio, we usually do so on the last day of each month. This makes synching up your portfolio to ours easier. We alert subscribers by email before we make any changes to our model portfolios. 

Ideally each investor would make each trade the day we do. In practice this can be difficult. There are two main reasons why you can’t always follow us perfectly: taxes and fees. In a past article we discussed this topic at length. 

You must be aware of your own fee and tax situation. Unfortunately, there will be cases where a new subscriber joins MAXadvisor, buys funds in a model portfolio, only to find that the next month we’ve sold one of the funds they’ve just purchased. Even though we have owned the fund for over a year, they just purchased the fund and may even have to pay a short-term redemption fee to sell. 

You have to use your best discretion on these issues that apply to you – we are not privy to your personal situation. We think you should keep all fees and taxes to a minimum, and you may want to adjust your portfolio strategy occasionally to avoid getting hit with higher taxes or fees. 

The good news is that the longer you stick with our model portfolios, the less the problem of possible short term trading will affect you. Once you have been in a model portfolio for a year, you will find we do very little tax inefficient trades and almost never incur short term trading fees.

Keep in mind our strategy is more long term in nature, so if you miss a trade by a few days or weeks, don’t panic. Remember, we’re long term investors. Get caught up when you can.

Have a question about investing in our model portfolios that wasn’t answered in this guide? Contact us by clicking here. If you are looking for a more complete portfolio management solution, consider MAXadvisor Private Management.