How To Allocate Your Investment Portfolio

Posted in   Wealth Building, Investing   on  January 24, 2023 by  Money Bren0

Nothing in this article is financial advice. The writer is not your financial advisor. Investing contains risk and you can lose money. Consult your own professionals before making investment decisions. This article may contain affiliate links. 

Portfolio allocation is about how you divide up your portfolio.

How much goes into stocks?

How much stays in cash?

How much into gold?


Real Estate?

The reason this is important is, portfolio allocation has the ability to greatly impact your returns, both to the upside and the downside.


You decide your portfolio is going to be 5% stocks and 95% cash. 

This means in a $100 portfolio, you would have:

  • $5 stocks
  • $95 cash

Now let's pretend you're the best stock picker in history, and your stocks grow 200% in the first year!

Amazing, right?

But it doesn't matter - since your portfolio allocation was so poor, you only had $5 of stocks.

Even after your 200% increase your stocks only grew from $5 to $15.

You're the best stock picker in history but your portfolio only went up from $100 to $110.⠀

This is why portfolio allocation is important, not only to maximise returns, but to balance your risk as well.

Having an allocation that suits your expertise/risk profile/goals is paramount to your success as an investor.

Let's look at some examples of different allocations that you might aim for as an investor.

Simple Portfolio

Capital required: Any
Experience level: Beginner
Risk tolerance: Low

This is a popular portfolio allocation that has been preached by personal finance books and money managers for decades.

As the name suggests - the allocation is 60% stocks, 40% bonds. 

The idea is when the economy is good, your stocks will boom, and when the economy is bad, your bonds still provide a reliable return of 2-3%.

It is an easy portfolio to manage and well suited for beginner investors.

Example Portfolio For Kiwis

☑️ 60% in USF (Smartshares S&P500 Fund)
☑️ 40% in
GBF (Smartshares Global Bond Fund)

Diversified Portfolio

Capital required: 10k+ suggested
Experience level: Intermediate
Risk tolerance: Low-medium

While the 60/40 portfolio only gives you exposure to 2 asset classes, a diversified portfolio allows you to spread your risk and return over 5 asset classes or more.⠀

As this is a more difficult portfolio to manage and rebalance, you should only start building a portfolio like this once you have a basic understanding of investing.

In this particular example you have:⠀

✅ 55% in broad based index funds. Stocks have consistently produced the highest returns over the last 100 years, so they form the backbone of every long term portfolio.⠀

✅ 15% in cash (can be bonds, term deposits, even just an online savings account). Cash is both a hedge, and your reserve for any buying opportunities that come up.⠀

✅ 15% in REITs, or Real Estate Investment Trusts. REITs are excellent because they give you real estate exposure, but you can choose EXACTLY how much exposure you want, instead of having to buy a whole house. If you only want $20 of real estate, you can buy $20. They also have very reliable dividends.

✅ 10% in individual stocks. This is optional (you can just add this into index funds, if you prefer), but most investors like choosing their own stocks. If you want to own Lululemon or Tesla, this 10% is where you do it.

✅ 5% gold. Gold will never 10x in value, but it holds its value well. It's there to stop you from losing money, rather than to make you rich. In bad economic times, gold is a good hedge to have.

Example Portfolio For Kiwis

☑️ 55% USF (S&P 500 Index Fund)
☑️ 15% NPF (NZ Property Index Fund)
☑️ 15% Cash
☑️ 10% stocks of your choosing
☑️ 5% Gold

Advanced Portfolio

Capital required: 100k+ suggested
Experience level: High
Risk tolerance: Medium

The Advanced Portfolio is a step up from our earlier Diversified Portfolio.

This is for someone very comfortable tracking investments, researching stocks and rebalancing a portfolio.

While I don't consider this portfolio "high risk" as it's diversified so well, you will regularly endure market volatility.

 Breaking it down:

✅ 50% broad based index funds.

✅ 7.5% Emerging Markets. This gives you exposure to markets in places like China, India, Brazil, Africa which are growing faster than anywhere in the world, but also are unpredictable.

✅ 7.5% Growth stocks. This could be a Growth ETF, or you could pick individual stocks (e.g. Apple, Paypal, Shopify etc).

✅ 7.5% Dividend stocks - this could be a high dividend ETF, or you could pick stocks (e.g AT&T, Spark, Hallensteins, Caterpillar etc).

✅ 10% REITs - Low risk assets to provide stability and cash flow, could be ETF or individual stocks (e.g. STAG, STOR, KPG).

✅ 2.5% Bitcoin - High risk asset to provide asymmetric upside.

✅ 10% Cash - Hedge and reserve for buying opportunities.

✅ 5% Gold - Hedge and downside protection.

Example Portfolio For Kiwis

☑️ 50% in TWF (Smartshares Total World Fund)⠀
☑️ 7.5% in EMF (Smartshares Emerging Markets ETF)⠀
☑️ 7.5% in DIV (Smartshares NZ Dividend ETF)⠀
☑️ 7.5% in USG (Smartshares US Growth ETF)
☑️ 10% in ASP (Smartshares Australian Property ETF)
☑️ 2.5% in Bitcoin.
☑️ 5% in Gold.
☑️ 10% in cash.⠀

All Weather Portfolio

Capital required: 10k+ suggested
Experience level: Beginner-intermediate
Risk tolerance: Low

The All Weather Portfolio is a formula by hedge fund legend Ray Dalio.

Dalio believes there are "4 seasons" of the economy and there is an asset class that does well in each one.

If you allocate your portfolio right, you can do well in every season, hence the name "All Weather Portfolio".

This portfolio was back-tested over the 30 years from 1984 to 2013 and it:⠀⠀
✅ Increased in value 27 out of the 30 years⠀⠀
✅ Had an average annual return of 9.72%⠀⠀
Even more impressive - there were 3 market crashes during that time (87, 2000, 2008), and it was resilient through all of them. The most the portfolio decreased in any one year was 3.93%.⠀

Note: During back-testing the portfolio was rebalanced once per year.

Breaking it down:

✅ 30% in stocks, preferably US stocks.
✅ 40% in long term US bonds (20-25 years) - balances your stock exposure risk.
✅ 15% in intermediate US bonds (7-10 years) - balances your stock exposure risk AND interest rate risk.
✅ 7.5% in gold - inflation hedge.
✅ 7.5% in commodities - performs well in periods of high inflation.

Example Portfolio For Kiwis

☑️ 30% in USF (Smartshares S&P500 fund)
☑️ 30% in VGLT (Vanguard Long term Treasury Bond Fund)
☑️ 15% in VGIT (Vanguard Intermediate Treasury Bond Fund)
☑️ 7.5% Gold.
☑️ 7.5% DBC (Invesco DB Commodity Index Fund)⠀

You can learn more about the All Weather Portfolio in Tony Robbins' book "Money: Master The Game".

Risk On Portfolio

Capital required: 100k+ suggested
Experience level: Advanced
Risk tolerance: High

If you're the kind of person who licks their lips at owning companies like Virgin Galactic, Tesla, Shopify, or anything getting people excited in Silicon Valley, you would be described as someone who is "risk-on".

A Risk-On Portfolio is for someone wanting above-average returns, is unbothered by market volatility and very comfortable tolerating risk.

This type of portfolio is best suited to people with high time frames, high disposable incomes, high risk appetite and a very sound understanding of markets and investing.

While it's true Risk-On portfolios have higher potential for abnormally large returns, they also have higher risk for abnormally large losses.

Unless you're supremely confident in your investing temperament and can afford to weather significant volatility and losses, stick to something more conservative.

Breaking it down:

✅ 25% in broad based index funds forms the foundation.

✅ 20% in growth focused index funds, weights you more heavily towards higher risk stocks with higher potential returns.

✅ 20% in emerging markets, gives you exposure to fast growing (but more unstable) economies like China, India, Southeast Asia and Africa.

✅ 20% in individual stock picks. Note you could also downsize your index fund allocations highly and re-allocate to here if you're confident on certain stocks.

✅ 10% in Bitcoin/cryptocurrencies hedges you and exposes you to asymmetric upside.

✅ 5% in cash for any buying opportunities.

Example Portfolio For Kiwis

☑️ 25% in TWF (Smartshares Total World Fund)⠀
☑️ 20% in USG (Smartshares US Large Growth Fund)⠀
☑️ 15% in EMF (Smartshares Emerging Markets Fund)⠀
☑️ 25% in individual growth stocks
☑️ 10% in Bitcoin
☑️ 5% in cash

Risk Off Portfolio

Capital required: 10k+ suggested
Experience level: Beginner-Intermediate
Risk tolerance: Low

If you're the type of person who sees your stocks fall 10% in one week and think OMG I'M GOING TO BE HOMELESS SELL IT ALLL!!!! then the Risk-Off portfolio could be perfect for you.

It can also be good for someone who just prefers to see less fluctuation, or is in a period of their life where they want less volatility as they're expecting to cash up in the near future (e.g. you're thinking of getting married and buying a home soon, or maybe you're about to retire and your priority is preserving capital rather than getting big returns).

Breaking it down:

✅ 30% low risk index funds, which reduces your stock exposure to less than a third of your portfolio.

✅ 30% bonds and 30% savings/term deposits - both extremely safe with little volatility and modest returns. ⠀

✅ 5% REITs for reliable cashflow.

✅ 5% gold as a store of value.

You may be thinking, what is a "low risk" index fund?

Most index funds are low risk by nature, but you can de-risk them further by choosing "value" focused funds.

Value funds contain only 'boring' and established companies such as 3M, Johnson & Johnson, Coca Cola, Kraft Heinz, and exclude 'exciting' Growth companies such as Tesla and Spotify.

This should greatly reduce your portfolio volatility.

Example Portfolio For Kiwis

☑️ 30% USV (Smartshares US Large Value Fund)⠀
☑️ 30% GBF (Smartshares Global Bond Fund)⠀
☑️ 30% cash
☑️ 5% NPF (Smartshares NZ Property Fund)⠀
☑️ 5% Gold

Even a risk-off portfolio can reliably provide 4-5% returns per year or higher if you manage it right. If this is the type of portfolio that helps you sleep well at night, go for it.

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