Betterment Changes Bond Portfolio Allocation

by Michael on Aug 30, 2013

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As a followup to my Betterment review, I just wanted to highlight a recent change in their investment strategy.

In short, they’ve decided to modify their bond allocation to increase diversification. They’re doing this through the inclusion of a broader selection of domestic bonds as well as the addition of international bonds.

The bond portion of their portfolios used to include:

  • 50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
  • 50% iShares Barclays TIPS Bond Fund (TIP)

But from now on, their bond allocation will include the following:

  • iShares Barclays Aggregate Bond Fund (AGG)
  • iShares Investment Grade Corporate Bond Fund (LQD)
  • iShare Short-Term Treasury Bond Fund (SHV)
  • Vanguard Short-Term Inflation Protected Securities (VTIP)
  • Vanguard Total International Bond Index Fund (BNDX)
  • Vanguard Emerging Markets Government Bond Fund (VWOB)

So they’ve added corporate bonds, international exposure, and a cash-like holding (SHV), the latter of which will only be present in lower-risk portfolios with less than 42% stocks. Above that threshold, the bond portion will include everything but SHV.

The image below depicts a before/after example for a model portfolio with 30% stocks and 70% bonds (click to enlarge).

They’re doing this in hopes of improving the risk-adjusted returns, which is an admirable goal. They’re also hoping to minimize any tax consequences by taking advantage of recent losses in the bond market when making the change.

All in all, these seem like reasonable changes that are pretty much in line with industry trends. For example, Vanguard has recently added international bonds to their all-in-one mutual funds.

As for use, we’re sitting tight with our diy portfolio, including domestic + international equites and domestic bonds (nominal + inflation-adjusted). What about you? Have you added international bonds to your portfolio?

Regardless, if you’d like to try out Betterment, they’re currently offering a $25 bonus to new investors. To get started, click this link or the button below.

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Note: Whenever someone opens a Betterment account through one of my links, I get a small bonus (plus you get $25). If you do, thanks. It helps me keep this site online. If not, that’s cool, too. I appreciate you just the same. 🙂


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