How We Build Investment Portfolios at ClearMind Capital

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People ask me some version of this all the time. "So what do you actually invest in?"

The honest answer starts with "it depends," and I know how unsatisfying that is. So this post is the longer answer. It walks through the building blocks we use, how we put them together, and how we decide which account holds what.

One thing up front. This is a look at our process, not a recommendation for you. Nothing here is personal advice, and there is no single ClearMind portfolio that everyone gets.

Why there's no one-size portfolio

Every portfolio we build starts with four questions, and none of them are about the market.

• How much risk can you live with? Not just on paper. How you'd actually feel watching your account drop 25% in a bad year.
• What is this money for? Retirement income, a house, a kid's education, a business, leaving something behind.
• When will you need it? Money you'll spend in two years and money you won't touch for twenty shouldn't be invested the same way.
• What does the rest of your picture look like? A pension, rental income, a big 401(k) at work, or concentrated company stock all change what the rest of the portfolio needs to do.

Two people can use the exact same building blocks and end up with completely different portfolios. That's the point. The rest of this post is about the building blocks. The mix is always yours.

The core: U.S. stocks, owned directly

For most clients, the center of the portfolio is U.S. stocks, and we own most of them through direct indexing.

What we index

We build the U.S. stock core from three S&P indexes:

• S&P 500. Large U.S. companies.
• S&P MidCap 400. Mid-size U.S. companies.
• S&P SmallCap 600. Smaller U.S. companies.

Together they cover large, mid and small U.S. companies without overlapping. One reason we like the S&P family is that a company generally has to show positive earnings to be added. That screen matters most for smaller companies, where plenty of businesses have never turned a profit.

What direct indexing means

With an index fund, you own shares of a fund, and the fund owns the stocks. With direct indexing, you own the individual stocks yourself, in roughly the same proportions as the index.

That sounds like a small difference. It opens up a few things a fund can't do:

• Tax-loss harvesting. Even in a year the index is up, some individual stocks in it will be down. In a taxable account, we can sell those at a loss to offset gains elsewhere, and buy something similar so you stay invested. A fund can't pass those individual losses through to you.
• Customization. If you already hold a lot of your employer's stock, or there's a company you'd rather not own, we can leave it out.
• More control over gains. When we rebalance or you need cash, we can choose which shares to sell with taxes in mind.

There are trade-offs, and we'd rather you hear them from us:

• The tax benefit lives in taxable accounts. Inside an IRA or Roth IRA, there's nothing to harvest, because gains and losses there aren't taxed year to year.
• It won't match the index exactly. Harvesting and customizing mean your holdings drift a little from the index, so your results will too, in either direction.
• The wash sale rule applies. If you sell at a loss and buy the same or a substantially identical security within 30 days before or after, the IRS disallows the loss. We manage around it, including across your other accounts if we know about them.
• Statements get longer. You'll own hundreds of individual stocks instead of one fund.

How we weight large, mid and small

We don't just copy each index's share of the total market. We set how much goes to large, mid-size and smaller companies based on a 24-month outlook, and we revisit it as conditions change.

That's a judgment call, and judgment calls can be wrong. So the shifts are measured, the core stays diversified across all three, and nothing about it depends on calling the next quarter.

Tilts: four themes we think are worth leaning into

Not all of the large-company sleeve is direct-indexed. Part of it goes into separately managed accounts (SMAs) built around four themes:

• Cybersecurity. Every business, hospital and government agency has more data to protect and more people trying to get at it.
• Artificial intelligence. The companies building the chips, data centers and software behind AI, and the ones putting it to work.
• Bioinnovation. Genomics, new kinds of drugs and medical technology.
• Space and aerospace. Satellites, launch, defense and commercial aviation.

An SMA works like direct indexing in one way: you own the individual stocks in your own account. The difference is that the holdings are chosen around a theme instead of tracking a broad index.

These are tilts, not the foundation. Themes like these can be more volatile than the broad market, they're concentrated in fewer companies and sectors, and a theme can be right while the stocks still disappoint because the good news was already in the price. That's why they sit alongside the core instead of replacing it.

Outside the U.S.

From there we add stocks outside the U.S.:

• International developed markets. Established economies like Europe, Japan, Canada and Australia.
• Emerging markets. Faster-growing economies like India, Brazil and much of Southeast Asia, with more ups and downs along the way.

The U.S. has had a great run, and we're happy to own a lot of it. But there have been long stretches where international stocks led, and nobody rings a bell when the leadership changes. Owning both means you're not betting everything on one country.

In some taxable accounts, we direct-index international stocks too. It works like the U.S. core, except it owns American depositary receipts (ADRs), which are shares of foreign companies that trade on U.S. exchanges, across both developed and emerging markets. We only use it in taxable accounts, because that's where it gets both benefits: tax-loss harvesting on individual holdings and the foreign tax credit on dividends. The trade-off is that not every foreign company has a U.S.-listed ADR, so it holds fewer companies than a broad international fund would.

Real estate

We also use real estate, through a broad, low-cost index fund that holds a wide range of U.S. real estate investment trusts (REITs). REITs own things like apartments, warehouses, data centers and cell towers, and they're required to pay out most of their income to shareholders.

That makes them a source of income and a different kind of diversification. It also makes them a tax question. Real estate is part of the portfolio either way, but when a client has a traditional IRA, that's usually where it lives. More on why in a minute.

Crypto, in some cases

For some clients, we include a small crypto allocation. Only when it fits the person, only when they want it, and only in an amount they could watch fall sharply without it changing their plans.

Crypto can be extremely volatile and speculative, and the SEC's own guidance is to only put at risk money you can afford to lose. We take that seriously. For a lot of clients, the right crypto allocation is zero.

Private markets, in the right situation

For clients who qualify and where it fits the plan, we can also offer access to private markets:

• Private equity. Ownership stakes in companies that aren't publicly traded.
• Private credit. Loans made directly to companies, outside the bond market.
• Pre-IPO companies. Shares of private companies before they go public, through a special purpose vehicle (SPV). The SPV buys the company's shares, and the client buys shares of the SPV.

For pre-IPO access, we partner with Monark, through our custodian, Altruist. Each SPV invests in a single private company. There's a one-time platform fee built into the price, and every offering has its own documents, so we walk through the terms and costs with you before you invest. For now, these investments can only be held in taxable or trust accounts.

There's no way to sell early. If the company goes public, you'd typically receive shares, which may come with a waiting period before you can sell them. If it's acquired, you might get cash, stock or both. If neither happens, you could lose the whole investment.

These come with real trade-offs. Your money can be tied up for years with no easy way to sell. Fees are usually higher than for public investments. There's less information to go on, values are estimated rather than priced every day, and a pre-IPO company may never go public at all.

They also come with eligibility rules:

• Pre-IPO offerings require you to be an accredited investor. For an individual, that generally means more than $1 million in net worth not counting your home, or income over $200,000 ($300,000 with a spouse) in each of the last two years with the same expected this year.
• Some private equity and private credit funds require you to be a qualified purchaser. That's a higher bar. For an individual, it generally means owning at least $5 million in investments.

We don't receive a commission on any of these, and we don't share in Monark's platform fee. The value of an SPV investment is included in the assets we manage for your household, so it's counted when we calculate our advisory fee, the same way your other managed accounts are. That means a pre-IPO investment carries both the one-time platform fee and our ongoing advisory fee, and we'll walk through that with you before you invest.

So this is a small piece for the right person, not something we put in every portfolio.

Bonds and cash

Most clients also hold bonds and cash. How much depends almost entirely on those four questions from the start, especially how soon you'll need the money and how much a drop would bother you.

Bonds and cash aren't there to win. They're there so a bad year in stocks doesn't force you to sell at the wrong time, and so the money you'll spend soon isn't riding on the market.

Here's how the pieces fit together in an illustrative growth-oriented portfolio. We left the percentages off on purpose, because those are the part that changes from person to person.

Asset location: which account holds what

This is the part a lot of people skip, and over time it can make a real difference in how much of your return you keep after taxes.

Most of our clients have more than one kind of account. A Roth IRA, a traditional IRA or old 401(k), and a regular taxable brokerage account. Each one is taxed differently. Asset location means looking at the whole portfolio across all of them and putting each holding where it's likely to be taxed least.

Here's how we generally think about it:

• Roth IRA: what we expect to grow the most. Qualified withdrawals from a Roth are tax-free. So we'd rather have the holdings with the highest expected growth there, where none of that growth is ever taxed.
• Traditional IRA or 401(k): what pays income. Bonds and REITs throw off interest and dividends that are mostly taxed as ordinary income. Inside a traditional IRA, that income isn't taxed each year. (REIT investors do get a deduction on those dividends in a taxable account, and that deduction is now permanent, but sheltering them often still makes more sense.) If you don't have a traditional IRA, the real estate still stays in the portfolio. It just goes in the next-best account.
• Taxable account: what's already tax-efficient. This is where direct indexing earns its keep, because tax-loss harvesting only works here. It's also where we like to hold international stocks, including the international direct index when we use it. Foreign countries often withhold tax on dividends, and in a taxable account you can usually claim a credit for it. In an IRA or Roth, that foreign tax is just lost.

The overall mix doesn't change. If your plan calls for a certain amount in bonds, you still have it. It's just sitting in the account where it makes the most sense.

A few caveats. Asset location only helps if you have more than one type of account. It has to work around your real life, like needing cash from a specific account. And we don't let the tax tail wag the dog. If the most tax-efficient arrangement makes the portfolio harder to manage or doesn't fit your plan, the plan wins.

Why the ongoing work matters

Building the portfolio is the easy part. Most of the value shows up in what happens after: rebalancing, harvesting losses, keeping each holding in the right account, and keeping people from making a big decision on a bad day.

Vanguard has studied this for 25 years in its Advisor's Alpha research. Its January 2025 update estimates that advisors who follow a set of wealth management best practices can add up to, or even more than, 3 percentage points in net returns for their clients, compared with the average investor's experience. Vanguard is clear that this isn't a number you get every year. It varies a lot by person, and much of it shows up in a few moments, usually when markets are scary or euphoric.

Here's how Vanguard sizes the pieces that line up with what we've described in this post:

• Behavioral coaching: from 0 to more than 2 percentage points. Vanguard calls this potentially the largest piece. It's helping someone stick with the plan when every headline says to bail, or not chase whatever just went up.
• Tax-loss harvesting: up to 1.5 percentage points or more. That assumes daily monitoring, a direct-indexed portfolio, reinvesting the tax savings and ongoing contributions, and it only applies to the part of the portfolio being harvested.
• Asset location: 0 to 0.6 percentage points on average. It's highest when someone has a similar amount in taxable and tax-advantaged accounts, holds a balanced portfolio and is in a high tax bracket. If everything is in one type of account, it's zero.
• Rebalancing: up to 0.12 percentage points. Vanguard says the real point of rebalancing isn't return. It's keeping your risk where you chose it, so a portfolio that drifted heavy into stocks doesn't take a bigger hit than you signed up for.

To be clear, these are Vanguard's research estimates of what's possible compared with an average investor, not ClearMind Capital's results, and not a promise of what any client will get. Vanguard itself says not every advisor adds this value just by charging a fee. It comes from actually following these practices. That's the part we take seriously.

What this looks like when you work with us

None of this happens in a vacuum. It's the last step of a longer conversation.

We start with your goals and what you want your money to do. Then we build a plan, and the portfolio comes out of the plan, not the other way around. After that we keep managing it: rebalancing, harvesting losses when they show up, keeping each holding in the right account, adjusting as your life changes, and checking in when the market gives everyone a scare.

That's what The ClearMind Clarity Method™ is built for.

If you want to see how these pieces would fit your situation, we'd be glad to walk through it with you. You can get in touch here.

Cheers.

Common questions

Does ClearMind Capital put every client in the same portfolio?

No. We use a common set of building blocks, but each portfolio is built around the person's risk tolerance, goals, time horizon and the rest of their finances. Two clients can hold very different mixes of the same pieces.

What is direct indexing?

Direct indexing means owning the individual stocks in an index yourself, instead of owning a fund that holds them. It allows tax-loss harvesting on individual stocks in a taxable account and lets you leave out specific companies. Your results won't match the index exactly.

Does direct indexing help in an IRA or Roth IRA?

Not with taxes. Tax-loss harvesting only applies in a taxable account, because gains and losses inside an IRA or Roth IRA aren't taxed year to year. That's one reason asset location matters.

What is asset location?

Asset location means deciding which type of account holds each investment, so the portfolio as a whole is taxed as little as possible. It's different from asset allocation, which is the overall mix of stocks, bonds and other investments.

Why hold international stocks in a taxable account?

Many foreign countries withhold tax on dividends. In a taxable account, you can usually claim a foreign tax credit for that withholding. In an IRA or Roth IRA, the foreign tax can't be claimed. When we direct-index international stocks, a taxable account also allows tax-loss harvesting on the individual holdings.

How much value can a financial advisor add?

Vanguard's Advisor's Alpha research estimates that advisors who follow wealth management best practices can add up to, or even more than, 3 percentage points in net returns compared with the average investor's experience. The biggest pieces in its estimate are behavioral coaching and tax-loss harvesting. Vanguard notes the value varies widely by person and tends to show up in specific moments rather than evenly every year.

Does ClearMind Capital invest in crypto?

For some clients, in small amounts, when it fits their plan and they want it. Crypto can be extremely volatile and speculative, and for many clients the right amount is none.

Can I invest in private equity or pre-IPO companies through ClearMind Capital?

In the right situation, yes, for clients who qualify. Pre-IPO offerings require you to be an accredited investor, and some private equity and private credit funds require you to be a qualified purchaser. Pre-IPO investments go through a special purpose vehicle (SPV) offered through our partner Monark: the SPV buys the company's shares and the client buys shares of the SPV. Monark builds a one-time platform fee into the price. We don't receive a commission or any part of that fee, and the SPV's value is included in your household's managed assets for our advisory fee. These investments are illiquid, carry higher fees and risks, and aren't a fit for most portfolios.

This content is for informational purposes only and does not constitute investment, tax, or legal advice. ClearMind Capital LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results.

The portfolio building blocks described here are illustrative and are not a recommendation to buy or sell any security or strategy. Actual portfolios vary by client. All investing involves risk, including the possible loss of principal. Diversification and asset location do not ensure a profit or protect against loss. Direct indexing and tax-loss harvesting do not guarantee a tax benefit, and results depend on your individual tax situation. Thematic strategies are concentrated and may be more volatile than the broad market. Crypto assets are highly speculative and can lose most or all of their value. Private equity, private credit and pre-IPO investments, including those held through an SPV, are available only to investors who meet eligibility requirements such as accredited investor or qualified purchaser status, are illiquid, may carry higher fees, and can lose some or all of their value; a pre-IPO company may never go public. Figures attributed to Vanguard are estimates from Vanguard research of potential value compared with the average investor's experience. They are not ClearMind Capital's results, are not guaranteed, and actual results vary. ClearMind Capital is not affiliated with Vanguard. Talk with a tax professional about your own situation.

Written byShane DuckworthPartner | Private WealthView bio →

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