Your Core Portfolio: Sample Strategies for the Long Haul

Institutional investors have long been using index investments at the core of their portfolio. As explained in previous posts, core represents the largest part of an investor’s portfolio, which is constructed to balance risk, return and cost over the long term (5+ years). Financial advisors are increasingly using an indexing strategy for core investments, and ETFs are the fastest growing vehicle at the core of investors’ portfolios. Nearly 50% of investors say their usage has increased in the past 2-3 years.1

The goal for your portfolio’s core should be to establish the right mix of exposures and investments, at an attractive price point, that seek to drive value over the long term. In my last two posts on the core, I highlighted the benefits of using ETFs and outlined a framework for selecting the right ETFs for your core. Now, to bring this to life, I’m giving you a couple of sample core portfolios and ways to think about building your own portfolio.

Typically, institutional investors remain disciplined in both building and maintaining their strategic or core exposure through their investment policy statement. This policy shapes strategic asset allocation decisions and can eliminate unintended or disproportionate bets. The framework is similar to what investors, often through a financial advisor, would use to determine their risk tolerance, investment goals, time horizon and income needs. As investors often have a tendency to overweight the tactical part of their portfolio by focusing primarily on the short term, utilizing the concept of investment policies is a useful tool for remaining disciplined.

So, begin with establishing your investment goal. Different goals (for example, saving for retirement, or a child’s education) may require different solutions. Then you can build your core. Start with the essentials. Select a portfolio that seeks to maximize long-term risk-adjusted returns—focusing on broad exposures— then customize based on specific goals. For example, if you’re looking for income, you may want to add dividend funds in a tactical portfolio after you have your core exposures defined.

Here are two sample core portfolios with differing risk tolerance and time horizon scenarios.  We have built these sample portfolios using the iShares Core Builder Tool.