Balanced portfolios are the backbone of investment portfolios. The portfolios can be built with just 2 ETFs. They are exposed to between 10% and 90% equities with the rest allocated to bonds. There are low-risk portfolios and high-risk portfolios.
For the past 10 years, the Balanced Portfolio 80/20 has returned 11.88 with a standard deviation of 13.89. The dividend yield is 1.53. The 30-year return is 10.13%. Year to date the Balanced Portfolio 80/20 Portfolio has returned 4.50%%.
- How do you build a balanced portfolio with ETFs?
- What is the return of the balanced portfolios?
- What is a balanced portfolio?
- The rule for balanced portfolios
- Advantages of a balanced portfolio
- Building the portfolio(s)
- Asset Allocation for the balanced portfolios
- How we select the right ETFs
- Alternatives to the balanced portfolio
- Suggestions for your next steps
- Related questions
How do you build a balanced portfolio with ETFs?
Here is how you build the Balanced Portfolio 80/20 portfolios with ETFs
- 80.00% US Total Stock Market (VTI)
- 20.00% Total US Bond Market (BND)
What is the return of the balanced portfolios?
Below you can see the return of the balanced portfolios. Notice the increasing returns as more stocks are added.
|Name||Asset class count||Year to date||Return in 2020||10 year return||CAGR since 1989 (%)||Risk level||Expense ratio|
|Balanced Portfolio 10/90||2||-2.62%||9.04||4.85||6.68||1||0.04%|
|Balanced Portfolio 20/80||2||-1.60%||10.37||5.9||7.26||1||0.04%|
|Balanced Portfolio 30/70||2||-0.59%||11.71||6.93||7.81||1||0.04%|
|Balanced Portfolio 40/60||2||0.43%||13.04||7.94||8.33||1||0.04%|
|Balanced Portfolio 50/50||2||1.45%||14.37||8.95||8.83||1||0.04%|
|Balanced Portfolio 70/30||2||3.49%||17.03||10.92||9.73||2||0.03%|
|Balanced Portfolio 80/20||2||4.50%||18.37||11.88||10.13||3||0.03%|
|Balanced Portfolio 90/10||2||5.52%||19.7||12.84||10.49||3||0.03%|
What is a balanced portfolio?
The balanced portfolios consist of two asset classes, stocks, and bonds. They are the simplest portfolios to implement. What they lack in flair and sexiness they make up for in simple effectiveness. They can be modeled to almost any risk level.
The rule for balanced portfolios
A rule of thumb is that the percentage of bonds should equal your age, so a 50-year-old should hold 50% VTI (stocks) and 50% BND (bonds). It may be too conservative for many.
Stocks have historically outperformed bonds, so holding a good portion of your portfolio in stocks for as long as possible is recommended. Stocks are riskier than bonds, so you should check your appetite for risk. The best portfolio is the portfolio that you are going to stick with.
You could argue that all portfolios are relatives of the balanced portfolios. Other portfolios simply slice up the stock and bond portions of the portfolio. For example, instead of just US Total Stock Market, you can add international stocks, or small-cap stocks, and so forth. For the bond portion, you can add TIPS or corporate bonds and so forth.
There are a lot of alternatives to a balanced portfolio. The most obvious choice would be to check out the Three Fund portfolio. The three-fund portfolio adds international stocks to the mix. There are many more wonderful portfolios.
If you want to find a high performing simple portfolio you want to limit the number of asset classes in your portfolio. In our overview of investment portfolios on this page you can see how many asset classes the portfolios have. For a simple portfolio try to keep the number of asset classes below eight. This still leaves a lot of wonderful portfolios.
Advantages of a balanced portfolio
You can see below that a simple balanced portfolio actually does pretty well compared to complex portfolios.
You should have this in mind when deciding which portfolio to go with.
You can get a very strong performance with only two asset classes.
Building the portfolio(s)
Below you can see the asset allocations for the portfolio(s). You can also see if the portfolio(s) has a socially responsible investing (ESG) variant portfolio. You can read more about socially responsible investing (ESG) investment portfolios in this post.
To build the portfolio(s) yourself, go to our best in class ETF page to see which ETF you should choose for a particular asset class. There you can also see which socially responsible investing ESG ETFs you should select.
Asset Allocation for the balanced portfolios
Balanced Portfolio 10/90
- 10.00% US Total Stock Market (VTI)
- 90.00% Total US Bond Market (BND)
Balanced Portfolio 20/80
- 20.00% US Total Stock Market (VTI)
- 80.00% Total US Bond Market (BND)
This portfolio is also very close to JL Collins’ Wealth Preservation Portfolio on Portfolioeinstein.com
Balanced Portfolio 30/70
- 30.00% US Total Stock Market (VTI)
- 70.00% Total US Bond Market (BND)
Balanced Portfolio 40/60
- 40.00% US Total Stock Market (VTI)
- 60.00% Total US Bond Market (BND)
Balanced Portfolio 50/50
- 50.00% US Total Stock Market (VTI)
- 50.00% Total US Bond Market (BND)
Balanced Portfolio 60/40
- 60.00% US Total Stock Market (VTI)
- 40.00% Total US Bond Market (BND)
This is also called “the benchmark portfolio” and is often a benchmark for pension funds, institutions, family offices, etc. Read more about the 60/40 in Meb Faber’s very recommended book Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies.
We go into much more detail of this portfolio in our post The 60/40 Portfolio – The Classic Portfolio.
Balanced Portfolio 70/30
- 70.00% US Total Stock Market (VTI)
- 30.00% Total US Bond Market (BND)
Balanced Portfolio 80/20
- 80.00% US Total Stock Market (VTI)
- 20.00% Total US Bond Market (BND)
Balanced Portfolio 90/10
- 90.00% US Total Stock Market (VTI)
- 10.00% Total US Bond Market (BND)
How we select the right ETFs
There are a lot of ETFs out there. Most of them can be discarded because:
- They are too expensive
- They hold too few assets and are therefore too illiquid
- They do not meet the criteria for representing the asset class they are supposed to mirror.
We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?
If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).
As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.
You can find the socially responsible investing ESG ETFs in the same article.
Alternatives to the balanced portfolio
There are many alternatives to balanced portfolios. The 60/40 balanced portfolio is a good starting point. A good way to improve upon the balanced portfolio in terms of returns is to break up the stock and bonds portfolio into small slices. The ultimate portfolio from Paul Merriman does just that. Many target-date funds also do this.
Suggestions for your next steps
Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone
If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.
You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool
What does a good portfolio look like?
A good portfolio will help you reach your financial goals with certainty. The timeframe is the most important factor to consider. This means that you need a big portion of stocks if your goal if far into the future and fewer stocks if your goals is in the near future.
What does a balanced portfolio look like?
A balanced portfolio consists of two asset classes. The two asset classes are stocks and bonds. The can vary in amount depending on you timeframe.