Improving M1 Finance’s Moderate Portfolio Expert Pie

M1 Finance provides Expert Pies that are pre-built portfolios available for you to invest in if you prefer not to choose your own investments. They are comprised of low-cost Vanguard ETF's. This is ideal for the investor who wants a lazy portfolio to be completely hands-off. M1's category of “General Investing” Expert Pies allow you to select a portfolio based on your personal risk tolerance. Here's my take on the “Moderate” version.

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M1 maintains that these portfolios are mean-variance optimized (think Modern Portfolio Theory and Harry Markowitz). This is unnecessary in my opinion, and makes them complicated and uneven. For this Moderate pie specifically, it gives it some strange choices across multiple types of bonds at seemingly haphazard allocations. I believe this pie is suboptimal for these reasons:

1. It uses corporate bonds, total bond market funds, and municipal bonds. Treasury bonds are superior.
2. They invest in small-cap growth stocks via blend funds, which haven't paid a risk premium historically.
3. Bond duration for this portfolio is still skewed too short/low in my opinion for their allocation and for someone who likely has a long time horizon.
4. Similarly, bond allocation, at 34%, is too high in my opinion to be considered “moderately aggressive.”
5. The allocation to Emerging Markets pales in comparison to that of Developed Markets, but the former offers more of a diversification benefit by having a lower correlation to the U.S. market. Emerging Markets have also paid a significant risk premium historically.
6. It weirdly ditches the REITs that are included at a higher weighting in some of the other pies.

At the time of writing, M1's Moderate Portfolio pie looks like this:

• 22% BND – Total US Bond Market
• 11% VCIT – Intermediate-Term Corporate Bonds
• 5% SHY – Short Treasury Bonds
• 5% MUB – Municipal Bonds
• 17% VOO – S&P 500
• 18% VEA – Developed Markets
• 13% VB – Small-Cap Blend
• 4% BNDX – Total International Bond Market
• 4% VWO – Emerging Markets
• 1% VNQ – U.S. REITs
• 1% VO – Mid-Cap Blend

In improving this portfolio, we're basically just going to fix the things I mentioned above and simplify as follows:

1. Avoid small- and mid-cap growth stocks and use their Value counterparts instead.
2. Treasury bonds instead of corporate bonds, total bond market, and municipal bonds.
3. Use a 1:1 ratio of Developed to Emerging Markets.
4. Increase REITs a bit.

My resulting improved Moderate Portfolio pie looks like this:

• 15% VOO
• 15% VEA
• 15% VWO
• 10% IVOV
• 10% VIOV
• 5% VNQ
• 20% VGLT
• 10% VGIT

You can add this pie to your portfolio using this link.

Here are my improvements of the other variations of M1's General Investing Expert Pies.

What do you think of my attempt to improve M1's Moderate Portfolio pie? Let me know in the comments.

Disclosure: I am long VOO and VWO in my own portfolio.

Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.