Asset Allocation: Moderate Portfolio

Analysis of a Moderate Portfolio

Changing the asset allocation from growth to moderate requires a shift in the percentages allocated to the six basic asset classes. In the following portfolio we lower the percentage allocated to the broad U.S. equities market, REITs, international, and emerging markets. The percentage allocated to bonds increases significantly. Were I not sticking with the same six ETFs, I would split the bond allocation among several different bond ETFs. In this example, I will not make such a change as I want to show how different allocations to the basic six ETFs will change the Return/Risk ratio. Also, is the Diversification Metric (DM) altered significantly?

As readers can see in the analysis below, the Return/Risk ratio improves from 0.51 to 0.54 as we move from the growth to the moderate portfolio. The Diversification Metric also improves by a few percentage points. What one gives up for these improvements is return.

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