M1 Finance’s Expert Pies are pre-built portfolios in which you can invest for free. This is great for the investor who wants a lazy portfolio for the majority of their investing horizon. Their category of “General Investing” Expert Pies allow you to select a portfolio for broad market exposure based on risk tolerance. These are comprised of low-cost Vanguard ETF’s. Here’s my take on improving the “Aggressive” Expert Pie.
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M1 claims that these portfolios are mean-variance optimized (think Modern Portfolio Theory and Harry Markowitz). This ends up making them unnecessarily complicated in my opinion and results in uneven allocations and some strange asset choices. More specifically though, I believe these portfolios are suboptimal for the following reasons:
- They incorporate corporate bonds. We know treasury bonds are superior.
- They use small-cap growth stocks, which haven’t paid a risk premium historically.
- Bond duration is skewed too short/low in my opinion for what is supposed to be an “aggressive” portfolio.
- Similarly, bond allocation, at 14%, is still too high in my opinion to be considered “aggressive.”
- The allocation to Emerging Markets pales in comparison to that of Developed Markets, but the former offers more of a diversification benefit by having a lower correlation to the U.S. market. Emerging Markets have also paid a significant risk premium historically.
At the time of writing, M1’s Aggressive Portfolio pie looks like this:
- 29% VEA – Developed Markets
- 26% VOO – S&P 500
- 14% VB – Small-Cap Blend
- 11% VCIT – Intermediate-Term Corporate Bonds
- 6% VWO – Emerging Markets
- 6% VO – Mid-Cap Blend
- 5% VNQ – U.S. REITs
- 3% BNDX – Total International Bond Market
In improving this portfolio, we’re essentially just going to fix the things I mentioned above:
- In avoiding small- and mid-cap growth stocks, we’ll use their Value counterparts.
- We’re going to use treasury bonds and eliminate corporate bonds.
- In making the portfolio truly more “aggressive,” bond holding will be set at 10% instead of 14%, and will utilize long-term treasury bonds with a longer average duration. We’ll use VGLT for this. Since the portfolio has such a small allocation to bonds, we don’t actually need any international bonds.
- We’re going to use a 1:1 ratio of Developed to Emerging Markets.
My resulting improved Aggressive Portfolio then looks like this:
- 25% VOO
- 20% VEA
- 20% VWO
- 10% IVOV
- 10% VIOV
- 5% VNQ
- 10% VGLT
You can add this pie to your portfolio using this link.
What do you think of this attempt to improve M1’s Aggressive Portfolio? Let me know in the comments.
Disclosure: I am long VOO and VWO in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational 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. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
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