Improving M1 Finance’s Ultra Conservative Portfolio Pie

M1 Finance provides Expert Pies that are pre-built portfolios available for you to invest in if you prefer not to choose your own investments. They are comprised of low-cost Vanguard ETF's. This is ideal for the investor who wants a lazy portfolio to be completely hands-off. M1's category of “General Investing” Expert Pies allow you to select a portfolio based on your personal risk tolerance.

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M1 maintains that these portfolios are mean-variance optimized (think Modern Portfolio Theory and Harry Markowitz). This is unnecessary in my opinion, and makes them complicated and uneven. For this so-called Ultra Conservative pie specifically, it gives it some strange choices across multiple types of bonds at seemingly haphazard allocations. I believe this pie is suboptimal for these reasons:

1. It uses municipal bonds, and at only 2%. Treasury bonds are superior.
2. It gives a little too much weight to short-term treasuries, which are a cash equivalent.
3. It invests in small-cap growth stocks via a blend fund, which haven't paid a risk premium historically.
4. Bond duration for this portfolio is still skewed a bit too short/low in my opinion for their allocation.
5. 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.
6. It weirdly ditches the REITs that are included in some of the other pies.
7. It also strangely gets rid of the mid-caps that are present in the other pies.
8. It excludes TIPS, which can provide some inflation protection for short time horizons.
9. It excludes gold, which could help reduce volatility and risk.

At the time of writing, M1's Ultra Conservative Portfolio pie looks like this:

• 82% SHY – Short Treasury Bonds
• 2% MUB – Municipal Bonds
• 2% VOO – S&P 500
• 6% VEA – Developed Markets
• 6% VB – Small-Cap Blend
• 2% VWO – Emerging Markets

In improving this portfolio, we're basically just going to fix the things I mentioned above and simplify as follows:

1. Avoid small-cap growth stocks and use their Value counterpart instead.
2. Treasury bonds instead of corporate bonds and municipal bonds.
3. Increase bond duration.
4. Include a dash of REITs.
5. Bring back mid-caps.
6. Include some TIPS in case this person is entering or is already in retirement.
7. Include gold.

My resulting improved Ultra Conservative Portfolio pie is 20/80 stocks/bonds. It actually looks very similar to my custom emergency fund replacement pie. Here it is:

• 10% VT – Global Stock Market
• 3% VIOV – US Small Cap Value
• 2% VNQ – US REITs
• 5% SGOL – Gold
• 20% VGIT – Intermediate Treasuries
• 40% VGSH – Short Treasuries
• 20% VTIP – Short TIPS

You can add this pie to your portfolio using this link.

Here are my improvements of the other variations of M1's General Investing Expert Pies.

What do you think of my attempt to improve M1's Ultra Conservative Portfolio pie? Let me know in the comments.

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Disclosure: I am long VOO 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.