- Monevator - https://monevator.com -

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 [1] 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 [2], to short-cut all that worrying.

And the justETF [3] Strategy Builder is the best asset allocation tool I’ve found yet.

What I like about it

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 [3] click on Model Portfolios in the navigation bar.

1. Just ETF [5]There’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 [6] 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 [7]

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

Here I’m going for a 70:30 split. That is pretty adventurous and similar to the divide in our Slow & Steady portfolio [9].

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 [10] until the market puts you through the ringer but, while you wait, there are some rules of thumb [11] and asset allocation personality types [12] that can help move you into the right postcode.

Also, consider how your investment objectives [13] 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 [14]

The first is a simple, single ETF total world equity strategy [15]. 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:

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 [16]

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 [3] 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 [17]

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 [18] 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?


Diversify with commodities [19]

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 [3] 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 [20] – 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 [21] – but it’s probably best to keep things simple to begin with.

Bond strategy

Stabilise your brew with bonds [22]

This section could help a lot of investors who struggle to understand the various bond classes [8].

Short-term, domestic government bonds are the safest (although not entirely safe [23]) 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 [3] (it’s free) to save your strategy and see its suggested ETFs.

Choose your ETFs [24]

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 [25], check the factsheet [26] 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 [27] show a wider range of choice.

Premium features

Past performance is no guarantee of future results! Etc. [28]

If you’d like to see how your proposed portfolio has performed historically then you’ll need to sign up [3] 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 [29], 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 [30] make most sense for them.

Small investors [31] 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 [4] before you can wield the justETF tools [3] wisely, so don’t forget to do your research before jumping in.

Take it steady,

The Accumulator