The long-term chart of stock prices shows an inexorable march from the lower left to the upper right—a graceful line and a striking illustration of compounding wealth. But zoom in to a typical human lifetime, and that smooth climb reveals wild market swings and devastating drawdowns. Unfortunately, none of us can choose the era in which we invest—or whether luck places our timeline on the steepest, smoothest stretch of that curve.

The real secret to compounding wealth, however, has less to do with luck—or complex finance—and far more to do with the simple arithmetic of steadily growing capital. Volatility, drawdowns, and taxes all conspire against this growth. Building a resilient foundation against these forces requires a more thoughtful, institutional, and modern approach. At Magnolia, we build portfolios that are Better, Bigger, and Broader—designed to navigate real-world market cycles and enhance long-term compounding.

The Foundation: Better Portfolios Through Meaningful Diversification

A better portfolio is defined by its ability to deliver stronger returns for the level of risk taken—resulting in a better risk-reward tradeoff. Traditional mixes of stocks and bonds can fall short of this standard, especially during periods of market stress when both asset classes may move in the same direction. True diversification requires including assets or strategies that genuinely behave differently across various economic environments. Such key diversifiers aim to improve portfolio outcomes by capitalizing on return streams that are less correlated with traditional holdings. Trend Following strategies, which capture price trends across a wide range of global markets (including markets not typically owned in many traditional portfolios), are one such example—often performing independently of stocks and bonds, particularly during downturns. Including uncorrelated strategies alongside traditional portfolio elements meaningfully enhances diversification and strengthens the overall risk-return tradeoff, making the portfolio better. Most portfolios don’t include these strategies simply because they fall outside conventional allocations—and many advisors lack the tools or expertise to implement them well.

Enhancing Potential: Creating Bigger Portfolios Efficiently

Meaningful diversification improves a portfolio by reducing overall risk—lowering both volatility and potential drawdowns. However, part of what makes the portfolio better can also limit it: allocating to diversifying assets often means reducing exposure to traditional return drivers like stocks. While risk may decline substantially, returns can dip slightly—resulting in a more efficient portfolio, but one that may fall short of an investor’s original return goals.

The solution is to make the portfolio bigger—scaling exposures efficiently to preserve the improved risk-return balance while targeting higher returns. This isn’t about taking on more risk indiscriminately—it’s about using tools that provide greater exposure per dollar invested, in a thoughtful, disciplined way.

Expanding Horizons: Building Broader Portfolios

While "better" and "bigger" portfolios are designed to improve investing within public markets, even the most efficient public portfolio is limited by the universe it draws from. Today, private markets—long the domain of pensions, endowments, and other institutions—are increasingly accessible to individual investors and represent a compelling next step for many. Making a portfolio broader means including private market investments—assets not traded on public exchanges—such as private equity, private credit, private real estate, and infrastructure. These investments can offer higher return potential through an illiquidity premium, but that’s only part of the story. They also access different areas of the economy, provide unique drivers of return, and offer additional sources of diversification that can help reduce overall portfolio risk. While not appropriate for every dollar in a portfolio, they can play a powerful role for many investors—enhancing long-term growth, improving resilience, and building a more well-rounded foundation for compounding.

Pushing the Frontier: A Tax-Aware Approach to Compounding

We know market returns can fuel growth, but taxes quietly chip away at it. That’s why tax strategy should be embedded in the portfolio from the start—not treated as an afterthought. This includes not only placing the right assets in the right account types based on their tax characteristics, but also taking advantage of new opportunities to harvest losses, optimize capital gains treatment, and use innovative structures that can defer or even eliminate taxes altogether. These strategies represent the frontier of tax-aware investing. When integrated thoughtfully, they can significantly improve the returns investors keep—preserving and accelerating long-term compounding.

A Holistic Framework

Compounding wealth over time isn’t about chasing returns, predicting the future, or relying on luck—it’s about building a portfolio that’s prepared for whatever comes next. At Magnolia, we believe the strongest portfolios are Better, Bigger, and Broader: thoughtfully diversified, efficiently scaled, and expansive enough to capture a wider range of opportunities.

• Better portfolios improve the risk-return balance through true diversification.
• Bigger portfolios use capital efficiency to scale those improvements and target higher returns.
• Broader portfolios expand the investment universe beyond public markets, unlocking new return drivers and deepening resilience.

This holistic framework is designed to help investors withstand market turbulence, stay invested through cycles, mitigate taxes, and grow wealth with greater confidence. Whether you’re revisiting your investment strategy or just getting started, this framework offers a clear foundation for how we think about building portfolios—and what you can expect as we move forward together.

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Sources:
Stocks : VTSMX (Vanguard Total Stock Market Index Fund),
Trend following: SG Trend Index (SocGen Trend Index).
Portfolios are rebalanced annually. Returns, volatility and drawdowns based on end of month values.  

Equity drawdown periods:

Tech Bubble: Sept 2007 - Feb 2009
GFC (Great Financial Crisis) Oct 2000 - Sept 2002
2022 Rate Hikes: Jan 2022 - Sept 2022

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