What’s a telltale sign of a poorly designed investment portfolio? Answer: A portfolio that underperforms indexed yardsticks. Question: Is it reasonable to expect this type of portfolio, which is unable to deliver satisfactory results during a favorable stock market climate, to miraculously thrive during an uncooperative market? Answer: Absolutely not.

This is one of the reasons why identifying the strengths and weaknesses of your portfolio is so important: It gives you an immediate point of reference by telling us whether you are progressing or digressing financially. Fixing a misaligned portfolio is easier to do when markets are up, versus later when they are down.

My latest portfolio report card is for G.O. in Swarthmore, Pennsylvania. He’s 66 years old, his wife is 57, and he asked me to analyze and grade his $818,000 investment portfolio. It consists of four accounts — a traditional individual retirement account, Roth IRA, 401(k) plan and a taxable brokerage account. The bulk of his money is divided between his 401(k) plan ($367,479) and taxable brokerage account ($316,371).

He owns nine exchange-traded funds, eight mutual funds, and two individual stocks. G.O. told me moderate growth is his investing style and his goal is to have his current portfolio grow to $1.6 million over the next six years, after which he plans to retire. If he doesn’t add any new money to his existing portfolio, I estimate he’ll need to average an 11 percent return to achieve that goal.

What kind portfolio report card grade will G.O.’s combined portfolios get? A, B, C, D or F? Let’s analyze and grade his investments together.

Cost. What is the standard for a low-cost portfolio? I always compare the cost of a portfolio against a blended mix of index ETFs that match up with the person’s asset allocation. This kind of measurement gives us a robust yardstick for judging whether a portfolio’s cost is excessive or not.

Many of G.O.’s mutual fund and ETF holdings charge less than 0.40 percent annually and a few like iShares S&P 500 index, Vanguard Small-Cap Index Fund and Vanguard Value ETF charge under 0.10 percent, which is outstanding. His most expensive funds are Northern Global Real Estate Index (0.50 percent) and Templeton Global Bond Fund (0.64 percent) in his 401(k) and iShares MSCI EAFE Small-Cap ETF and iShares MSCI EAFE Value Index ETF (both charge 0.40 percent) are located in his taxable account. His trading activity is deliberate, disciplined and limited. His combined portfolios do an excellent job at containing investment costs.

Diversification. Investment portfolios that lack exposure to all of the major asset classes, including stocks, bonds, commodities, real estate and cash, are not truly diversified. G.O.’s combined portfolios have exposure to U.S., international and emerging markets stocks, U.S. and international bonds, global real estate and cash. Moreover, the mutual funds and ETFs used by G.O. are acceptable diversified proxies for the asset classes they’re tracking. They don’t engage in any style drift whatsoever and are true to their investment objective. However, G.O.’s portfolios come up short by missing exposure to commodities (a major asset class).

Risk. G.O. told me his goal is to retire in six years and grow his $818,000 portfolio to $1.6 million. G.O.’s combined portfolios’ asset mix allocates 29 percent to U.S. stocks, 29 percent to international and emerging market stocks, 39 percent to bonds and cash, and 3 percent to individual stocks (Apple and Citigroup). G.O.’s overall asset mix corresponds very well to a “moderate” investor of age 60.

Tax efficiency. All well-built investment portfolio deliberately minimizes the negative impact of taxes by positioning money in tax-efficient vehicles, such as ETFs, and through smart asset location. The latter means putting tax-inefficient assets, such as bonds and real estate investment trusts, into tax-deferred accounts while stock funds can generally be kept in taxable accounts. G.O.’s combined portfolios grade well on reducing the threat of taxes. He owns tax-efficient ETFs, and as a long-term investor, he’ll be taxed at the more favorable and lower long-term capital gains rate.

Performance. The correct standard of performance isn’t distorted peer groups, which are common in the mutual fund industry, but rather how a person’s portfolio performs relative to a blended mix of passive index ETFs that correspond to the person’s asset mix. G.O.’s one-year performance gain for combined portfolios was 13.7 percent ($74,626), while a blended passive benchmark replicating the same asset mix gained 5.18 percent. He outperformed the benchmark by 8.52 percent. Well done.

The final grade. G.O.’s final portfolio report card is a “B.” This is an outstanding grade, and the risk level of his portfolio is compatible with his age, goals and risk capacity. Also, his portfolio graded well at minimizing investment cost. It’s a tax-efficient portfolio and his one-year performance beat our blended benchmark, which corresponded to his asset mix.

Why didn’t G.O.’s portfolio get an “A”? By missing exposure in a major asset class (commodities), his portfolio came up short of perfect on diversification. Aside from that, G.O.’s portfolio is a definite “A” with commodities exposure.

In summary, G.O.’s combined portfolios are well-organized, and he has a disciplined system is in place for asset allocation and trading. If he maintains what he’s doing, there’s no reason to think he can’t reach his goal of $1.6 million in six years.

Ron DeLegge is the founder and chief portfolio strategist at ETFguide. He’s inventor of the Portfolio Report Card which helps people to identify the strengths and weaknesses of their investment account, IRA, and 401(k) plan.

More from U.S. News

15 Investing Ideas for 2015

8 Smart Tax Moves for Investors

8 Strategies for Investing in Real Estate

Portfolio Analysis: An $818,000 Investment Plan Has a Winning Philosophy originally appeared on usnews.com