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Can you build a 40/30/30 portfolio with ETFs?
– moneysense.ca
The unique market conditions of the 2022 bear market exposed a major flaw in the traditional 60% stocks/40% bonds balanced portfolio used by millions of investors. That year was defined by two forces: surging inflation across both the U.S. and Canada, and aggressive interest rate hikes by their respective central banks.
From January to December 2022, the Vanguard Balanced ETF Portfolio (VBAL), which holds a 60/40 mix, lost 15.04%, nearly as much as the 16.88% decline posted by the 100%-stocks Vanguard All-Equity ETF Portfolio (VEQT). The problem wasn’t the stocks; investors should expect volatility with them. It was the bonds.
Portfolio Analysis Results (Jan 2022 – Dec 2022)MetricVanguard All-Equity ETF Portfolio(VEQT)Vanguard Balanced ETF Portfolio(VBAL)Start balance$10,000$10,000End balance$8,921$8,859Annualized return (CAGR)-10.79%-11.41%Standard deviation15.96%11.96%Maximum drawdown-16.88%-15.04%Sharpe ratio-0.78-1.15Sortino ratio-1.02-1.40Source: Portfolio Visualizer
As interest rates spiked to combat inflation, the bond component of VBAL was hit hard…
