The 7Twelve Portfolio is equally-weighted diversification. Here we’ll review its components, performance, and the best ETFs to use in its implementation.
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Contents
Who Is Craig Israelsen?
Craig L. Israelsen, Ph.D. designed the 7Twelve Portfolio. He is an Executive-in-Residence in the Financial Planning Program at Utah Valley University (UVU). His most popular book is 7Twelve: A Diversified Investment Portfolio with a Plan.
What Is the 7Twelve Portfolio?
The 7Twelve Portfolio is a lazy portfolio that takes diversification to the max, utilizing 12 different funds, equally weighted, across 7 asset “groups.”
Israelsen maintains that “the performance of a diversified portfolio is more important than the performance of any individual fund.” I completely agree. This is basically the foundation of modern portfolio theory.
Israelsen uses food analogies, suggesting that “great salsa is all about diversification,” and that “investment portfolios should include a wide variety of diverse ingredients.”
The 7Twelve Portfolio uses 12 funds, each comprising 1/12 (8.3%) of the portfolio, across these 7 asset “groups”:
- U.S. Stocks
- International Stocks
- REITs
- Resources/Materials
- U.S. Bonds
- International Bonds
- Cash

I put “groups” in quotation marks because the above assets only span 4 asset classes: stocks, bonds, real assets, and cash.
The asset allocation comes out to 65/35 equities to fixed income. Specifically, the portfolio is constructed as follows:
- 8.3% U.S. Large-Cap Stocks
- 8.3% U.S. Mid-Cap Stocks
- 8.3% U.S. Small-Cap Stocks
- 8.3% Ex-US Developed Stocks
- 8.3% Ex-US Emerging Markets Stocks
- 8.3% REITs
- 8.3% “Natural Resources”
- 8.3% Commodities
- 8.3% U.S. Bonds
- 8.3% Inflation-Protected Bonds (TIPS)
- 8.3% International Bonds
- 8.3% Cash
7Twelve Portfolio Performance
Here's the 7Twelve Portfolio's performance vs. an S&P 500 index fund and a 60/40 Portfolio from 2003 through July, 2021:

Granted, this only goes back a little less than 2 decades, small-caps and international stocks have suffered in recent years, and past performance doesn't indicate future results, but the S&P 500 and a 60/40 portfolio have absolutely clobbered the 7Twelve across the board for this time period.
The whole point of diversification is to reduce volatility and drawdowns and thereby improve risk-adjusted return. Notice that the 60/40 portfolio has a risk-adjusted return, as measured by Sharpe, about 1/3 higher than that of the 7Twelve Portfolio, and with significantly lower volatility and smaller max drawdown. Volatility and max drawdown of the 7Twelve Portfolio were actually not too far off from those of the S&P 500 index.
Here are the rolling returns:

Drawdowns over that time period are illustrated below. Notice how in some cases, the drawdown of the 7Twelve Portfolio was actually greater than that of the 60/40 and the S&P 500:

7Twelve Portfolio Review
Being a Boglehead myself, my knee jerk reaction to the 7Twelve Portfolio is that it is somewhat antithetical to Jack Bogle's proposition of the “majesty of the simplicity.” Obviously one could construct a much more complicated portfolio, but 12 different funds just seems unnecessarily complicated. In fairness, the portfolio is specifically overweighting classes like small-caps, mid-caps, and emerging markets relative to their market weights, so separate funds become necessary up to a point.
The naive equal weighting seems arbitrary and is almost certainly suboptimal, given the assets we're buying. I would submit that an allocation using risk parity (even if it's just a starting point) or simply market cap weighting would likely yield a more robust long-term portfolio. I'm all for not relying on overfitting or a mean-variance optimization output to dictate allocations, but the equal weighting here seems more haphazard and less of a thoughtful “plan,” as the book title suggests. In complete fairness to Israelsen, I haven't read the book.
I'm generally not a big fan of Commodities. They have largely fallen out of favor, as their long-term returns have been dismal, which we would expect. We want diversifiers to have positive expected returns. Commodities have had negative real returns over the past century. I explored potentially using the Utilities sector as an alternative diversifier here.
The prescribed “Natural Resources” is something I've never actually encountered in a lazy portfolio, which is why I put it in quotes. There are only several funds available – all with relatively high expense ratios – for this asset category. The heavy allocation to Commodities and Resources will likely just drag down returns over the long-term. Funds for these assets also have much higher fees. At the end of the day, though, these are just commodity producers (gold miners, etc.). These companies are more correlated with the stock market than with commodities themselves, which sort of defeats the intended purpose of their inclusion. In holding them, the investor is also taking on the business risks of these companies that may be unrelated to commodities. Lastly, commodity producers tend to sell commodity futures to hedge their price risk, which basically cancels out the precise hedge we’re looking for.
Similarly, with 16.6% in U.S. and international bonds, I question the need for an additional 16.6% dedicated to cash and TIPS. These, too, while providing a mild inflation hedge, are going to drag down long-term total return.
Another criticism is that international bonds – held for the purpose of diversifying against U.S. credit risk – are likely an unnecessary component, especially considering this is not a bond-heavy portfolio.
We also know that small-cap growth stocks don't tend to pay a risk premium, but there's no specific Value tilt in the 7Twelve Portfolio about which Israelsen has written in the past, while there is very much a Size tilt, weighting mid-caps and small-caps the same as large-caps. But then that Size tilt doesn't apply to the international stocks; a little odd.
I also think the 7Twelve Portfolio looks more diversified than it really is. For example, we could achieve the same global stock diversification across all size caps and all markets, with Vanguard's Total World Stock Market Fund (VT). But here we're using 5 funds – arguably 7 if you include REITs and Natural Resources under that equity umbrella – to replicate that diversification.
While the 7Twelve seems to be an interesting thought experiment and is certainly the most colorful lazy portfolio, it's definitely not for me. I definitely wouldn't suggest it for a young investor with a long time horizon. But then it's not great for the retiree, either, because we're still talking about 65% in stocks.
I'm always supportive of any portfolio that steers investors away from stock picking, but I see no compelling reason or research-based justification to adopt the 7Twelve Portfolio over, say, much simpler options like a 60/40 Portfolio, a 3-Fund Portfolio, or other lazy portfolios, including other slice-and-dice ones, all of which should have the added benefit of lower fees.
I would also argue the latter options are more easier for a DIY retail investor to understand due to their greater simplicity, which may allow the investor to stay the course more easily than with the more complex 7Twelve Portfolio. Tracking error regret – giving up on a strategy after consistent underperformance – is a real concern.
And there's the rub. The 7Twelve Portfolio seems better suited for a seasoned, semi-active investor who is going to take the time to research the potential merits of the holdings and allocations, not for an armchair retail investor who needs to simply take it as face value and trust in its ability to generate long-term returns and mitigate risk. Again, I would submit that a simpler portfolio would be easier for that investor to grasp and get behind without wavering.
What do you think? Let me know in the comments.
7Twelve Portfolio ETFs and Pie for M1 Finance
If you comb through the 7Twelve Portfolio website looking for specific funds to use in its implementation, you won't find them. Israelsen wants to charge you $350 for that information. Below are my suggestions based on sufficient AUM and volume, and low fees whenever possible.
M1 Finance is a great choice of broker to implement the 7Twelve Portfolio because it makes regular rebalancing seamless and easy, has zero transaction fees, and incorporates dynamic rebalancing for new deposits. I wrote a comprehensive review of M1 Finance here.
Note that M1 also doesn't allow fractions of 1% holdings upon initially buying, and each fund is supposed to be precisely 8.3%, so I've taken the 65/35 allocation to 64/36, allowing for 8% equity holdings and 9% fixed income holdings.
Using mostly low-cost Vanguard funds, we can construct the 7Twelve Portfolio like this:
- VOO – 8%
- VO – 8%
- VB – 8%
- VEA – 8%
- VWO – 8%
- SCHH – 4%
- VNQI – 4%
- GNR – 8%
- BCI – 8%
- BND – 9%
- SCHP – 9%
- BNDX – 9%
- CLTL – 9%
You can add the 7Twelve Portfolio pie to your portfolio on M1 Finance by clicking this link and then clicking “Save to my account.”
Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.
Disclosure: I am long VOO, VEA, and VWO in my own portfolio.
Interested in more Lazy Portfolios? See the full list here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.

Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.

I had the same reservations about 8% commodities when I began using the 7twelve strategy 6 years ago. Commodities have been dead money for some time. It turns out they do have a nice place in the portfolio when inflation hits. I use COMT to get exposure. I looked at the 7twelve back test and there have been periods when the commodities carry the portfolio. We may be in that environment now.
I think I’d rather use TIPS and short bonds for inflation “protection.” Ultimately though, I’m also of the mind that periods of high, unexpected inflation are likely to be infrequent and short-lived nowadays, so any allocation to such an asset is probably just an opportunity cost that drags down the portfolio’s total return over the long term. Commodities have had negative real returns over the last 100 years.
Do you still hold this perspective on inflation?
Yes