Portfolios are somewhat like spaghetti westerns. You can view them any number of times, and each time you do, there will be a new learning or two. And what could serve as a better example than the eminently watchable The Good, The Bad And The Ugly, the Clint Eastwood classic that weaves itself around a terrific plot and, as most fans will vouch, a quiver of catchy one-liners? I will stretch my imagination a bit and leverage the film’s title to divide portfolios into three categories—good, bad and ugly—each with its own features, each defined by distinctive characteristics. Their differences are reflected in the dissimilar returns they can potentially deliver over identical time periods. Clearly, the good portfolio is the most superior performer, while the ugly one occupies the lowest rung. As investors will no doubt agree, a portfolio is as effective as the assets contained in it. The right kind of choices will boost its performance; the wrong ones will obviously bring down overall returns. Such choices, to be ideally based on the investor’s risk profile,...