≡ Menu

The best free asset allocation tool

Many investors spend a lot of time worrying about their asset allocation. What’s the magic percentage that I should put into the UK market versus the US versus Emerging Markets?

Sadly, there is no magic percentage and no perfect answers to such questions. There’s only roughly right guidance that exploits the wisdom of the market.

I’ve always wanted an easy-to-use-tool that can guide investors through the process of building a diversified DIY portfolio, to short-cut all that worrying.

And the justETF Strategy Builder is the best asset allocation tool I’ve found yet.

What I like about it

  • It’s free.
  • It’s simple.
  • It’s attractive.
  • It’s founded on sound passive investing principles that enable you to quickly rustle up a decent global portfolio.

I think it could be useful for a novice investor who’s hesitating over their asset allocation. Here’s a quick run through of how it works.

Start here

From the justETF home page click on Model Portfolios in the navigation bar.

1. Just ETFThere’s no need to sign-up but it’s fun to invent a cheeky / absurd / massively portentous name for your portfolio. (I’ve just plumped for KISS below).

Drop in your starting cash figure and you’re away.

Risk profile

How will you split your holdings between bonds and equities? This is the stage that will have the most impact on your portfolio’s fate.

2. Just ETF

Use the slider on the left to set your risk speedo.

  • Lower risk means slamming more of your allocation into bonds.
  • More risk means upping your equities.

Here I’m going for a 70:30 split. That is pretty adventurous and similar to the divide in our Slow & Steady portfolio.

Note: Playing with this slider bears no relation to your actual ability to handle risk. That’s an ever-shifting target that no tool can reliably hit.

You won’t really have a clue about your risk tolerance until the market puts you through the ringer but, while you wait, there are some rules of thumb and asset allocation personality types that can help move you into the right postcode.

Also, consider how your investment objectives affect your need to take risk.

One thing I would love to see here is a quick visual of your chosen split’s historic volatility. It’s one thing to be gung-ho for 100% equities, but another to see how often that resulted in a terrifying freefall that cut your wealth in half.

Choose your strategy

This is my favourite bit of the tool. Choose from three equity strategies of increasing refinement.

Equity strategy

The first is a simple, single ETF total world equity strategy. Notice how diversified it is with 2,470 holdings spread across 46 countries.

Note too the amber concentration warning (in the bottom right) triggered by the large allocation towards the United States:

  • US = 52%
  • UK = 7% (no home bias here)
  • Japan = 7%

This strategy will unnerve many investors who worry that the US market may be overvalued. Moreover, it’s more reflective of the US domination of a global index rather than global GDP.

The second strategy – New International Economy – offers a quick fix.

Here we add an emerging market allocation in line with justETF’s estimate of that bloc’s share of global GDP.

Just add emerging markets

Just add emerging markets

Now the US share is down to 38% and emerging markets are up to 35%, with China weighing in at 8%.

This kind of integrated data is the future for DIY investors. Until now we’ve had to laboriously piece together the puzzle from Googled fragments. But justETF conveniently collates everything in one place and presents it as readily accessible headlines that don’t fry your brain circuits.

Still, some investors will fret that this strategy is nowhere near complicated enough to feel right.

Balance of power

The third strategy – Regional Approach – carves up the world into five separate ETF blocs as if we were playing Risk for money.

A fine-grained world equity strategy

Now the US influence is knocked back to 26% and the Concentration bar has crabbed into the green zone. That’s because the top three countries now constitute less than 50% of our equity allocation.

Using separate ETFs to build up your global exposure like this will reduce your ongoing charges but it can increase your trading costs. It’s more suitable for investors with pretty big portfolios or those who can make large contributions.

That’s equities sorted. What other asset classes should we throw into the mix?

Diversification

Diversify with commodities

The instinct to spread our bets is one of the few human intuitions that serves us well when investing.

On top of the key equity / bond split, justETF suggests reserving a slice of your risk portfolio for commodities.

Gold is good during an end-of-days crisis while broad commodities can guard against stagflation – although various question marks hang over the index trackers that cover this asset class.

I personally don’t hold commodities but as you can see from the screenshot I have taken a wedge here to show you the idea.

I’m surprised that justETF doesn’t include property trackers as a diversifying option in this section. Hopefully that will come later.

Of course, you can pile on all sorts of sub-asset classes – including risk factors – but it’s probably best to keep things simple to begin with.

Bond strategy

Stabilise your brew with bonds

This section could help a lot of investors who struggle to understand the various bond classes.

Short-term, domestic government bonds are the safest (although not entirely safe) option you can choose. They’re not likely to lose or gain much but they can help prop up your returns when fear stalks the markets.

The UK Government Bond strategy will put you in an ETF holding gilts with maturities stretching from 1 to 20 years. This is liable to offer more return in exchange for greater volatility than the short term option.

Finally, if you’re prepared to accept even more volatility in a bid to earn more yield, then choose the UK government and corporate bonds option.

Corporate bonds tend to correlate with equities during a recession so this choice could add a fair degree of risk to the part of your portfolio that’s meant to offer stability.

It would be nice to see an index-linked gilt option here, as linkers have a key role to play in protecting your portfolio from inflation.

Suggested products

You need to sign up to justETF (it’s free) to save your strategy and see its suggested ETFs.

Choose your ETFs

You can choose to view the cheapest ETFs, or the largest, or the oldest (handy for track record) and to screen out synthetic ETFs.

The screen clearly shows the weighting of each ETF in your portfolio, how much money you should devote to each one plus the fees you’ll pay to the ETF providers.

Click each ETF name to drill into the key features, check the factsheet and other info.

Click the orange squares on the right to see a list of alternatives and swap them out.

The major problem I have with this section is that the suggested choices are restricted to ETFs that track the MSCI family of indices. So you’re selecting from just the cheapest MSCI trackers, rather than the cheapest trackers. That screens out Vanguard ETFs and others besides.

There are plenty of good MSCI tracking ETFs out there, and it’s a decent range to choose from, but as optimiser I don’t like to feel unnecessarily restricted.

Monevator’s cheapest tracker picks show a wider range of choice.

Premium features

Past performance is no guarantee of future results! Etc.

If you’d like to see how your proposed portfolio has performed historically then you’ll need to sign up for a paid account. This will cost you £9.90 a month for a year’s subscription or £14.90 a month for three months.

Paying up also unlocks various extra features, including rebalancing alerts, performance tracking, and transaction lists.

Frankly, I think the justETF Strategy Builder is an excellent asset allocation tool. I also recommend trying the ETF Screener to help you unearth good ETFs.

That said, you should know I have written paid-for articles for justETF’s website and that the links to the website in this article are affiliate-enabled (but there’s no cost to you).

I am recommending justETF’s tools because I think they are genuinely helpful for DIY passive investors.

However it’s only right that you’re aware that I have a commercial relationship with justETF at the time of writing.

ETFs aren’t the only fruit

The main drawback with justETF’s take on passive investing from our perspective is that it focuses exclusively on ETFs.

I believe a passive investor should consider whether ETFs or index funds make most sense for them.

Small investors who make monthly contributions are particularly vulnerable to the whittling effects of trading fees with ETFs, and will often be better off with index funds.

Finally, you need a firm grasp of passive investing strategy before you can wield the justETF tools wisely, so don’t forget to do your research before jumping in.

Take it steady,

The Accumulator

Receive my articles for free in your inbox. Type your email and press submit:

{ 25 comments… add one }
  • 1 Neverland April 28, 2015, 10:31 am

    Not too sure about the “risk share” tab 3 is working properly

    This is directing you to 35% emerging market equity share under the “regional” and “new international options”

    In fact exposure to UK and European listed multi-nationals will already be giving you a big underlying exposure to emerging markets

    I think if you followed this tool and these you would end up with nearly half your equity component of the portfolio directly exposed to emerging markets

    Otherwise its quite pretty

  • 2 PC April 28, 2015, 1:03 pm

    Thanks. Interesting article. I’ll definitely give this a try.

    I’ve allocated funds to small number of ETFs by a much less scientific approach ..

    I do have a suspicion that the Vanguard World Index is hard to beat though ..

  • 3 Aron April 28, 2015, 1:57 pm

    That’s a nice site.

    Shame there isn’t the feature to specificy allocations rather than using the presets.

    Would be nice to have an tracker only website. I seen an article on TrustNet that they are going to be doing (or have started) a passive / tracker ranking. Maybe something similar will come from them in their portolfio builder.

  • 4 Grand April 28, 2015, 2:00 pm

    I use both trustnet and morning star as rough guides in order to monitor my asset allocation. Trust net as it breaks my fund and ETF holdings down into sectors and countries, morning star as it’s portfolio tools for tracking my investment returns are graphically easier to interpret.

  • 5 M April 28, 2015, 3:09 pm

    I think it’d be interesting to have the data included on there as to where the income comes from in a region itself e.g. if you bought a FTSE 100 ETF, the majority of the money is actually made overseas (around 60% I read recently), so you are already diversified to some extent.

  • 6 dearieme April 28, 2015, 10:15 pm

    Well, Accumulator old fruit, we are decumulators. We might perhaps get a bit of portfolio growth in future, but probably not enough to compensate for our selling investments. This implies (I think) that we need to have quite a large allocation to cash, so that we will not find ourselves having to sell equities/bonds/property/gold after a crash. Are there any other lessons we should absorb? Would a portfolio of just equities and cash make any sense, for example? (Gold and bonds paying income of zero and pathetic, respectively.) Should we be looking for high-yielding equities, or just invest in global equities passively, and take quasi-income by reducing cash?

    The high yielding current accounts available at present pay handsomely more than inflation, but I doubt that this happy state of affairs will long continue.

  • 7 Jeff April 28, 2015, 10:47 pm

    This etf site has some merit.
    Particularly the part that can show 3 year country performance.

    However, what it is missing is a valuation metric for the countries, such as PE ratio. That way we can check we’re buying in at a sensible valuation.

  • 8 SemiPassive April 29, 2015, 9:20 am

    With even IGLT, 10 year average duration, yielding about 1.5% I can’t imagine how rubbish 1-5 year gilts are.
    On Tim Hale’s whiskey and water analogy, since the book was written govt bonds are more like stagnant pond water that a tramp has weed in. 2% ISAs over 2 years are like tap water, and 3% Santander current account like bottled mineral water in comparison. Both with zero risk of capital loss up to the FSCS limits.

  • 9 Moongrazer April 29, 2015, 10:48 am

    @SemiPassive

    Please do correct me if I’m wrong (since I am still learning much about this game), but it’s my understanding that you don’t hold bonds purely for their growth potential. Rather, since investors have a habit of dumping equities and ploughing into bonds in a bear market, they act as a natural ‘cushion’ when the whiskey part of your portfolio takes a dive. While a 3% Santander account guarantees you that yield and with negligible risk (by comparison), you won’t get the cushioning effect since that 3% will never deviate in a bear market.

  • 10 SemiPassive April 29, 2015, 12:34 pm

    Yes, you’re correct in the fact that bonds could go up in value if stocks crash, but the cushion has already been sat on and squashed so much that theres limited give left in it without bonds having to move to a negative yield. In Germany they already are. Read Jeremy Warner’s recent Telegraph article on bonds.

    As for holding cash in a crash, you’ll still be able to use it to redeploy it into shares as part of a rebalancing. It will also be good in a deflationary environment, especially on a fixed rate.
    Its really about balancing the upside vs the downside of govt bonds, and for the little guy in the street cash is viable “water” imo, certainly up to £85k of it.
    I will build up a holding of index linked gilts again in a few years though as I start derisking. For info I am currently 70% equities (ETFs and ITs held in SIPP) and 30% Cash (mainly in ISAs)

  • 11 Neverland April 29, 2015, 12:46 pm

    @semi-passive

    The research on gilts providing a cushioning effect on equity losses is based on period where the interest on gilts offered a positive real return

    We now have a position where the interest on gilts is pretty minimal if you look at RPI. Indeed over the channel there is a about a trillion of government stock changing hands at negative nominal yields

    We’ll find out the practical to go with the theory when US interest rates rise I guess

  • 12 The Accumulator April 29, 2015, 7:43 pm

    @ Neverland – what research are you referring to?

    Don’t forget that emerging market firms will have exposure to the developed world.

    As for the 35%, this goes back to the debate over matching allocations according to the wisdom of the capital markets and not our own gut instinct. As played out here: http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

    @ dearime – the key question’s for decumulators are your need, ability and capacity for risk. If you don’t need growth (because you’ve made it) then it would make sense to minimise equity exposure, especially if significant portfolio losses would be damaging. If your assets far exceed your future liabilities then you can afford to take more stock market risk – especially if you want to leave a legacy and you’re unperturbed by significant losses. I understand why you’d cut bonds out for cash at the mo, but the performance of bonds has confounded everyone since the recession. They still have a role to play in asset allocations, unpalatable a prospect though they seem. I’m not a fan of high dividend strategies. It’s better to be diversified across the whole stock market rather than rely on the performance of a sliver.

  • 13 Neverland April 30, 2015, 9:38 am

    @ Accumulator

    Here is something hyper-scientific

    https://www.blackrock.com/institutions/en-us/literature/whitepaper/em-growth-us.pdf

    Bloackrock reckon that the S&P 500 is 20% exposed to emerging markets by revenue based on 2012 data

    If it was the same for the rest of developed markets, Europe and Japan really, then your 65% developed exposure gets you 17% emerging markets exposure

    Personally, based on a quick look at the FTSE 100 I wouldn’t be surprised if exposure to emerging market revenues is higher in Europe and Japan

    As for the converse, the listed stocks in emerging markets are a funny bunch in each market and not necessarily representative of each national economy at all

    I always thought I was quite brave for having a 15% direct emerging market exposure…now I know I am a lilly livered stay at home coward

  • 14 Neverland April 30, 2015, 10:00 am

    @Accumulator

    Another one, this guy gets to 20-25% revenue exposure of the S&P500 to emerging markets in 2010 (table 8)

    https://www.imca.org/sites/default/files/current-issues/JIC/JIC142_UnderstandingSP500.pdf

  • 15 The Accumulator May 1, 2015, 7:08 am

    @ Neverland – thanks very much for the links. It was actually the bond research you were referring to that I was asking about.

    Re: overseas exposure and fidelity of local markets. I think this is something of a red herring. Yes, the capital markets are not faithful mimics of the economy. Vast numbers of private companies and activities are not represented on exchanges. Also, globalisation tells us that S&P 500 companies are exposed to every corner of the world… Europe, Japan, the developed Pacific, emerging markets, frontier markets. And vice versa. Good luck unravelling all of that.
    But basing your asset allocation strategy on the market is the best proxy we have for the clever money’s judgements on future prospects.

  • 16 Andrew H May 1, 2015, 12:26 pm

    What is doesn’t seem to factor in is FX exposure. As a UK based retail investor it puts me into unhedged US$ ETFs. No problem if I recognize and accept that risk but it ought to come with a health warning.

  • 17 The Accumulator May 1, 2015, 1:18 pm

    @ Andrew – I just want to check that you’re not under the impression that if you choose £ denominated ETFs that invest abroad then you’re protected from currency risk. That’s not the case. If, for example, an ETF invests in Emerging Markets and comes in £ or $ varieties then you’re exposed to currency risk either way. Apologies if I’m telling you something you already know! It’s just it’s a common misperception and there aren’t many hedged ETF products out there. Moreover, they aren’t necessarily worth the extra expense.

  • 18 Andrew H May 1, 2015, 1:31 pm

    True of course but surely by investing in $ ETFs (which I do) you add an extra layer of exposure. Sterling and the US$ don’t move in synch. I agree there are very few hedged ETFs. I look at liquidity and avoid synthetics but still look for my base currency if it is available.

  • 19 The Accumulator May 1, 2015, 2:18 pm

    All that matters with unhedged products is the exchange rate between your currency and the underlying investment’s currency. £ share classes for foreign investments are marketing gimmicks. Here’s an article that explains it very well:
    http://the-international-investor.com/investment-faq/funds-denominated-foreign-currency-extra-currency-risk

  • 20 Andrew H May 1, 2015, 2:43 pm

    Interesting. I will have a second look at this.

  • 21 The Investor May 1, 2015, 2:55 pm

    *pout* Here’s another article that explains it almost adequately:

    http://monevator.com/currency-risk-fund-denomination/

    🙂

  • 22 The Accumulator May 1, 2015, 3:07 pm

    Ooops. Forgot about that one!

  • 23 griff May 2, 2015, 6:44 pm

    reading a bit lately that so called safe pensions invested in bonds may take a pasting when the much touted collapse happens. Is this true, where do you suggest i park my simple pension for TOTAL SAFETY regards griff

  • 24 The Accumulator May 3, 2015, 11:24 am

    @ Griff – there’s no such thing as total safety. I’m sorry to have to tell you that but it’s best you know. Read this for more:

    http://monevator.com/assume-every-investment-can-fail-you/

    Re: bonds. Bonds like any other asset class can go down in value as well as up. However, highly rated domestic government bonds are far less volatile than most: equities, gold, commodities, corporate bonds or emerging market bonds for example.

    If and when interest rates rise then you can expect bonds to fall in value initially. Here’s a piece that explains more and links to some good research on the topic:

    http://monevator.com/sell-government-bond-funds/

    I don’t know what you’re reading but the mainstream media can be very alarmist about this kind of thing. Historically, a bond ‘pasting’ is a walk in the park compared to a bear market in equities.

    Here’s a piece on different types of bonds you can invest in. All bonds are not alike:

    http://monevator.com/bond-asset-classes/

    Read this for an introduction to a strategy for protecting your lifestyle in retirement:

    http://monevator.com/the-most-important-goal-for-every-retiree/
    http://monevator.com/secure-retirement-income/

  • 25 The Investor May 3, 2015, 11:47 am

    @griff — Cash is the closest thing to a safe asset class, but as TA says it’s not totally safe. You can easily be hit by inflation that reduces the real value of your money over time and by interest rate risk (i.e low returns for years) and also in extreme cases by bank failures and the like.

    Cash tends to be very very very safe in the short term but over the long-term (decades) the risk of earning far less than from other asset classes is high. However with bond yields so low that’s not quite the issue it usually is currently.

    AIUI few pension providers will let one hold cash, even in a SIPP, and the rates are likely to be very low.

    Please note neither my comments nor The Accumulator’s above are meant as personal financial advice, which we’re not qualified to give. Just some pointers for your own further research.

Leave a Comment