What Factors Does Marcus Invest Consider When Recommending a Portfolio?

What we'll cover:

• The key tenets of Marcus Invest’s philosophy
  
• How Marcus Invest makes investment recommendations for each individual, and the variables that help us get there
• An overview of Marcus Invest’s portfolio theme options

Investing can be overwhelming, whether you are brand new to it or you’ve been buying stocks and bonds for decades. For one, there are a lot of terms (and acronyms and charts) to get familiar with. And the ups and downs of the market can make anyone nervous.

That’s why some investors turn to professionals for help. Navigating the investing world can feel a little less intimidating when you have resources available to help you. And while you may not be able to check in with a financial advisor every time you make a financial move, that doesn’t mean you can’t get professional advice – today there are many tools and apps that can help you make investing decisions that feel right for your goals.

That’s why we developed Marcus Invest: We know investing can be a challenge. Our digital investing platform, which offers managed portfolios of stock and bond exchange-traded funds (ETFs), is designed with you and your investing goals in mind – and to make things a little less overwhelming. 

Below, we’ll discuss how Marcus Invest makes investment recommendations for each individual and the variables that help us get there.

What are the key tenets of Marcus Invest’s philosophy?

Many people have an investment philosophy – a few core principles they use to guide their investing decisions. At Marcus Invest, we have one, too. We use a holistic approach, guided by a few key tenets like diversification, a focus on staying consistent, and investing for the long-term.

Diversification

You’re probably familiar with the concept of diversification. In short, it means “don’t put all of your eggs in one basket.” For investors, having a diversified portfolio means that you’re invested in a variety of assets. That can include stocks, bonds or a combination of securities. On top of that, your assets may be diversified at the asset class level as well. That could mean spreading your investments across different industries, geographies and economies. 

But why is diversification so important? Because it could help protect you against risk – but keep in mind that it does not completely mitigate against it. Just because your portfolio is diversified doesn’t mean that you’re protected against losses or that you’ll realize gains.

For example, let’s say that tech stocks encounter some turbulence and tech stock prices fall. A portfolio made up of only tech stocks would likely drop in value, too. But if you had other assets in the mix, like different types of stocks or bonds, those could help cushion the blow. That’s why it’s important to keep diversification in mind when investing.

There’s more to it, though. If we take our example above, you might have a bunch of different investments in stocks and bonds and think that you’re diversified. But, if all the assets are actually correlated to the prices of tech stocks behind the scenes, then when tech stock prices fall, your account value or market value probably would, too. Translation? Sometimes what’s on the surface doesn’t tell you the whole picture. 

That’s why we dig a little deeper. When you open an account with Marcus Invest, we’ll recommend a portfolio that’s diversified using our factor-based approach. We utilize the expertise of Goldman Sachs’ Investment Strategy Group (ISG), which is an independent group of investment specialists who provide guidance when it comes to things like asset allocation and diversification.

Here’s what that means: The professionals in ISG understand that while a portfolio may look diversified on the surface with a mix of different types of assets, they might all be impacted by the same macroeconomic factors. 

In an effort to make our portfolios diversified to balance risk under many different market conditions, we analyze many factors to understand different sources of returns. That way your portfolio is designed so that the assets work together to help maximize returns while balancing risk.

Earlier we mentioned that we build our Marcus Invest portfolios with ETFs – and they offer further levels of diversification, too. ETFs combine a collection of assets like stocks or bonds into one single fund and trade on an exchange like a stock. 

Because they’re a bundle of different assets, they offer a degree of built-in diversification. But certain ETFs can be concentrated in certain industries or geographies, so some ETFs are less diversified than others. That’s something to be mindful of. If you want to really get a sense of a fund’s level of diversification, you can look at the ETF’s prospectus and holdings.

A long-term perspective

A longer time horizon helps you better position yourself to ride the highs and lows of economic cycles. (Even the most seasoned investors can get jittery when the market starts to drop!) 

The ability to invest for the long term may be important to many investors. When you open a Marcus Invest account, you tell us your time horizon – which can be as short as five years. However, keep in mind that we take a strategic long-term approach to investing when we design our portfolios. That longer-term approach allows our portfolios to balance both risk and returns over time.

Consistency

We’re not done yet! We also think that consistency is important. When it comes to investing, irregularity can hurt your progress toward your long-term goals, so it’s a good idea to be steady in your approach. That can mean sticking to your investing plan and staying focused on building a diversified portfolio

For that reason, we incorporate some processes and features to make sure we factor in consistency when managing your portfolio.

Marcus Invest relies on a solid foundation of academic research and expertise when choosing the investments we make available on our platform. That means that we take a thoughtful approach to picking the ETFs included in our portfolios. In other words, our team is doing their homework. 

Further, Marcus Invest can help make it easy to consistently contribute to your investments through our recurring deposit feature, which lets you schedule a certain amount to transfer to your Marcus Invest account on a weekly or monthly basis, automatically.

So, how does Marcus Invest recommend a portfolio for me?

Now that we’ve covered the key tenets governing the Marcus Invest philosophy – thanks for sticking with us! – let’s take a look at how that philosophy is put into practice.

Marcus Invest uses a portfolio recommendation engine created by the Goldman Sachs Digital Investing and Advice team. It’s powered by what you tell us, so when you set up your account, we’ll ask you a series of questions to get to know you better. Then, the tool recommends a portfolio that we think is suitable for you based on your investment timeline and risk tolerance.

Risk tolerance is a combination of your risk capacity and your risk willingness. Your risk capacity refers to how much potential loss you’re prepared to handle with an investment, while your risk willingness refers to your approach to it. Generally, people with a higher risk tolerance can afford to take on more risk and also tend to be comfortable doing so in order to potentially score bigger returns (they also tend to be more invested in stocks for this reason).

That’s why we weight your risk capacity more than your risk willingness. But every investor is different, so it’s important to be honest with yourself.

After that, you’ll select one of the available portfolio themes to further determine which ETFs you’ll be invested in.

Then, we recommend a portfolio with an underlying asset allocation based on the information you’ve provided.

But even though we’ll suggest a portfolio, you can customize one step further. After offering up our recommendation, you can select to invest one notch more aggressively (a higher stock ETF allocation) or play it safer (a higher bond ETF allocation). Once you’re up and running, you can also adjust your risk tolerance and timeline when things in your life change by visiting your Portfolio Profile page. That way, your portfolio reflects your evolving needs. 

You’ll be able to change your approach up to three times per month, though, we don’t recommend that you change things up that often.

A look at Marcus Invest’s portfolio theme options

As we mentioned earlier, once we get down a few basics about your financial profile and preferences, you’ll pick one of our three unique portfolio themes. Here’s a quick rundown: 

• Core: Designed to track market benchmarks with a diverse mix of asset classes
• Impact: Designed to track market benchmarks while supporting sustainable business practices (our ESG option)
• Smart Beta: Designed to potentially deliver higher long-term gains with more variability to market benchmarks by investing in select Goldman Sachs ETFs (not available for IRAs)

The portfolio theme you select determines which specific ETFs will be included in your portfolio, so you can invest according to your preferences.

Letting Marcus Invest work for you

We know that investing can be confusing and overwhelming at times. That’s why we created Marcus Invest – to help simplify and streamline the investing process.

And we don’t mind doing the heavy lifting – in fact, we enjoy it. We’ll help you select a portfolio that fits your needs and manage it, so that you can focus on achieving your broader financial goals.