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A Simple Asset Allocation Plan for Free

By Team

This table below serves as a rule of thumb. As one gets older, the portfolio should be more conservative. But many other factors determine your risk tolerance, and you must decide your investment objectives. Note: you may need a human advisor to help you assess your unique cases. If you can, seek one. Otherwise, this is our free advice.

You may create a diversified portfolio of equity using SPDR S&P 500 ETF Trust (SPY) and fixed income using Vanguard Total Bond Market ETF (BND) with allocation based on your age and risk tolerance.


Buying ETF is easy, just like buying stocks and you can do it via any brokerage firms that offer zero commission on trades.

Why Not Use the Help of a Robo Advisor?


Robo advisor boasts a low fee. Is it true? At a glance, yes, it's true. But if we examine further, your low fees cost you a lot. This article shows you how to create a Do-It-Yourself portfolio that will save you unnecessary advisory fees. You'll be surprised that unnecessary fees could mean a Tesla or even a house.

Take, for example, Betterment. As published by Backend Benchmarking in the Q2 2021 Robo Report  Betterment's 3-year annualized return was 11.04%. For this performance, they charged an annual fee as low as 0.25%.

It pales against SPY, which annualized return was 18.56% during the same period. Of course, comparing Betterment's portfolio to SPY is not apple to apple. We can safely assume that the one tracked by Backend Benchmarking has broad asset classes. It may consist of equities from various market cap, international equities, and fixed income.

OK then, let's create a more diversified portfolio of 50% SPY and 50% BND. This 50:50 portfolio has a 3-year annualized return of 12.52% during the same period, beating Robo's portfolio.

Wait. There are no international equities in SPY. It’s true, but considering that one-third of S&P 500 companies’ revenue came from non-US  investing in SPY should capture global economic growth too. In fact, S&P and MSCI World have a high level of correlation.

So how can a 50% SPY and 50% BND portfolio save you a house?

Assuming a constant return over the next 30 years and an annual investment of $10,000, a small Robo fee of 0.25% could cost you over $114,000 in the future. Adjusting for inflation, the current value of that money is almost equal to Tesla Model 3 at current price. A Do-It-Yourself portfolio of 50% SPY 50% BND could even save you a house!

But how do you know what assets to buy and how much for the allocation? This is a serious question that a human advisor must address because a Robo cannot assess some personal factors. For example, if your boss is a jerk and you are on the brink of termination, you may not realize that your risk tolerance should be lower. 

However, if you feel a human advisor is too expensive, that “Simple Asset Allocation” table at the beginning of this article might be helpful.

Posted on: August 15, 2021

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