How to build an investment portfolio for Long Term Returns

How to build an investment portfolio for Long Term Returns

A 10+ time period is long and while Long Term Investing Strategies for Financial Independence should be relatively simple they need to cover key asset classes (at least 2-3 different ETFs in the Core Portfolio) that can boost returns in the long run 

The great news is that given your Time Horizon and if you follow sound investment principles you have, by historical standards, no chance of losing money

After assessing your Risk profile you can construct a portfolio quite easily and reduce costs/fees. What most people don’t realize is that this can be done without much financial knowledge 

Whether you are based in the US, Europe or the UK the composition of your Equity Portfolio shouldn’t change significantly (otherwise you have a home country bias!) – the only difference is the type of Bond ETF you will buy and the currency hedge you need

Choose your BOGLEHEAD

how to build an investment portfolio option 1
how to build an investment portfolio option 2
how to build an investment portfolio option 3
  • A Golden Retriever has the simplest and easiest to understand portfolio with minimum maintenance as he (probably correctly) assumes that a dog is just as likely to beat the market as a professional investor. The Golden Retriever just follows the bone (aka money) in a most efficient and transparent way
  • A World Cyclist accepts that markets are usually efficient but given her experience in travelling across the globe wants to incorporate some marginal very high level tweaks to her portfolio. She also won’t bother overdoing this because, after accounting for time doing research, trying to beat the market just can’t compete with real life experiences like cycling the world
  • A Banker knows that markets are not fully efficient but that doesn’t make him any more likely to succeed.  He is well too aware that exploiting inefficiencies after accounting for fees is almost impossible. He knows that 90%+ of his portfolio is boring but it does generate returns. He still wants to incorporate a few active bets with some ‘play money’

#1 - Common Investor Characteristics

  • All Investors are on the move and their portfolios should not be dependent on their home country (US, Europe or UK)
  • All Investors follow Wise-Money Investing Philosophy and are forecast-free (but some like to ‘sin a little’) 
  • All Investors are investing in line with current academic knowledge about long term investment strategies minimizing risk and maximizing returns – this framework is helpful in understanding how to clean up your portfolio from asset classes you don’t need
  • All Investors use cost-efficient ETFs to maximize future returns 
  • All Investors will log-on to their broker account at least once a year to re-balance their portfolios

Which Equity Portfolio is better?

There is no size fits all in Investing

The portfolios depend on your maturity with regards to Investments or the desire to control individual parts of your portfolio (with or without moving away from Market Allocations) that can bring some learning about the Markets but may be prone to more mistakes

Portfolios that are more complex are likely to be less cost-efficient and more cumbersome in maintenance but may satisfy your need to deviate from the market (for better or worse) 

Three things more important than your Equity Portfolio

Most importantly, there are investment aspects that will will matter more in the long run than the granularity of your Equity Portfolio:

  • Right balance between Bonds and Stocks (see below)
  • Being consistent in keeping the approach you choose
  • Being patient – every portfolio you choose will have its day in the sun

#2 - Choose your Risk Profile

How much money should I keep in Bonds?

  • Remember, knowing yourself and your goals matters most – you should always align your Portfolio with your objectives and that’s why this Portfolio should be individual and tailored to your needs and not benchmarked against other people you know
  • Take a questionnaire first to understand what Stocks/Bond allocation you need
  • The allocation to Equity from the questionnaire could serve as guidance for the Equity part below
  • Below portfolios are generic and for guidance only. They do not take into account other assets e.g. Real Estate or Private Investments and are designed to be a starting point of portfolio construction
  • Your specific circumstances should dictate asset allocation. Seek financial advisor help where appropriate 

Animated examples of Asset Allocation

asset allocation animation

The below portfolios  take  70% / 30% allocations and are illustrative examples of balanced growth portfolios for someone with some appetite for risk and higher returns:

  • 70% is Allocated to Equities 
  • 30% to Fixed Income
You may adjust the allocation based on your Risk profile

#3 Equity part of Your Portfolio

Choose the Complexity

The Equity Portfolio can be as simple as One World ETF, Two International ETFs or more. Below are some pro and cons of these approaches which are by no means exhaustive

Below I assume that you chose a 70% allocation to Equities:

  • One ETF can cover all your needs for the 70% Equity portion
  • Alternatively, you can split it into Emerging and Developed countries or focus only on Large and Mid Caps or add Small caps as well
  • Finally, you can get more granular: control the allocation to your local market (here US as example), marginally over-allocate to  growth vs. value Equities or even add an active non-ETF component to your portfolio (Stock Selection)

#1 - Retriever Equity Portfolio

- How to build an investment portfolio for Long Term Returns -simplest index portfolio

Why and How?

  • The Golden Retriever Portfolio shows that Investing can and should be simple – by doing basic investment research you can set up your own portfolio which is also likely to beat most portfolios with active investments
  • I have described the Equity part of the Golden Retriever Portfolio  in more details here 
  • As long as you do some initial research around the right choice of an ETF this portfolio is probably the simplest and most hassle-free that could can invest in using your broker

Pro and Cons

By historical standards, the World ETF Value has, on average, doubled every 10 years. By investing and keeping it for the entire 10 year period it would have on average returned c. 7% per year (after 0.3% fees

World ETF Benchmark Total Return (1988-2020)

Of course, if you held longer than for a decade,  the return would be closer to exponential over time given how compound interest works

Learn more about how to choose a World ETF

#2 - Cyclist Equity Portfolio

How to build an investment portfolio for Long Term Returns - more advanced portfolio

Why and How?

  • The World Cyclist Portfolio shows that Investing can be efficient and flexible at the same time – you can keep the core of the portfolio in line with best investment practices while incorporating some of your high level views (e.g. developed vs emerging economies)
  • You previously met Kumiko (久美子). When she was 20 she invested during the worst possible period – the Japanese Stock Market Crash
  • After cycling in Emerging Asia and incorporating lessons learnt from the crash episode, Kumiko went a step further
  • Kumiko has seen the speed at which the world is transforming and emerging Asia looks to still be underestimated (according to her) in Global ETF Benchmarks
  • She aims to marginally reflect that view in her portfolio

Pro and Cons

Splitting a bundled World Equity ETF into Emerging and Developed countries

Kumiko wants to split the World Equity ETF (as per the Retriever Portfolio) into two:

According to Kumiko the size of Emerging Market Stocks is under-estimated - here is a typical International Equity ETF (ex-US)
long term investment strategies - international markets - relative size of emerging markets etfs

The problem with typical International Market ETFs is that they are weighted by size of the Market

The chart above shows this trend for a Vanguard ETF as of Q3 2020. You can see how under-represented certain emerging countries are (in red) relative to their size of the Economy and their growth

But remember, the market always has reasons why the allocations are as they are and any deviation is, by definition, active investing (EM markets are also more volatile – see Banker Portfolio section)

Where to look for current Market Capitalizations

The FTSE Russell Index factsheet or its MSCI equivalent have the current market capitalizations of Developed and Emerging countries. You could broadly align the Equity part of your portfolio with current market capitalizations where:

  • US is 55%
  • Developed Markets ex-US – 35%
  • Emerging Markets – 10%

Kumiko has tweaked the illustrative portfolio from 10% to 15% in Emerging Markets and from 90% to 85% for Developed countries

The benchmark  is the Golden Retriever Portfolio that is aligned with current market capitalizations


Illustrative Asset Allocation

Given 70% of allocation to Stocks, the changes translate into 60% in Developed Countries (down from 63%) and 10% for Emerging Markets (up from 7%) in the overall Portfolio

Here is a guide to understand how you can separate your Equity portfolio into simple parts

#3 - Banker Equity Portfolio

How to build an investment portfolio for Long Term Returns - very advanced

Why and How?

  • The Banker Portfolio shows that you can marry Passive and Active Investing to express your views by keeping the core of the portfolio broadly in line with best investment practices but may implement tweaks (like separating your home country, value vs growth etc) and even setting aside a 5-10% allocation for Stock picking (because we all like to ‘Sin a little’)
  • But always remember that each choice is by definition active investing that, after fees, has a lower likelihood of generating returns above market
  • There are numerous biases like over-optimizing a portfolio for past performance or following current market hype and implementation issues to be aware of

Pro and Cons

Some tweaks that are frequently implemented include exposure changes to asset classes, factors or individual markets

Asset Class Performance over the past 20 years - ETF Benchmark Risk & Annual Returns (2001-2021)

Some frequent changes to portfolios include documented factors that explain returns outside of the market risk factor such as small caps which may not be straightforward to implement, value stocks (see references below for Videos) or even momentum 

The past two decades have also been characterized by an  outperformance of the technology Sector, which while already heavy-weight in the S&P 500, is a frequent tilt in portfolios

REITs may not always be defined as distinctive asset class and their return can be replicated through a combination of Stocks and Bonds but remain a portfolio addition for some investors

You should always consider it in conjunction with the Real Estate you already own (e.g. limited benefit of over-allocating if you already own and rent out Real Estate). Real Estate can:

  • Produce consistent cash flows and pays high dividends
  • Make great use of conservative leverage (LTV below 50%)
  • Serve as a strong defense against inflation
Countries' Performance over the past 20 years - ETF Benchmark Risk & Annual Returns (2000-2020)

Over the past 20 years, Ex-US developed Market returns have essentially come from Dividends

Above are Total returns including dividends e.g. French CAC 40 Index was unchanged over the past 20 years so the c. 3% annual return you see on the chart comes solely from dividends

Developed Markets have lagged over the past 20 years and while US Equities have performed well, EM have the highest returns that can be included if you are comfortable with volatility

This is a complex topic involving not only country risks but also their sectors that are constantly changing

If you are rather interested on understanding how to select asset classes to keep your portfolio simple have a look here

#4 Bond part for All Portfolios

long term portfolio - treasury bonds inflation protected bonds

Common options for Portfolio Protection

Key assets for portfolio protection include traditional Bonds:
  • Government Bonds – need no introduction. I have previously reviewed US and Global Government Bonds
  • Blend Bond Funds – a mix of high quality Corporate Bonds and Government Bonds. Either US or GlobalGlobal Blend Bond Funds are much larger than the US ones but incremental benefits are generally marginal for US Investors – on a currency hedged basis there is little difference to US Bond Funds (so, while great for European / UK Investors, this may not be needed for US Investors)
And Inflation Protection:
  • Inflation Protected Bond ETFs – Government Bonds that provide protection in any inflationary environment
  • Gold – the ultimate currency (here is a separate guide on its risks and merits). It mainly protects in case of  hyperinflation
The 22.5% / 7.5% is an illustrative split but does include both elements taking into account that very high Inflation periods are rare

All will hedge your portfolio, but have different characteristics

  • Diversifiers to your Equity Portfolio perform differently depending on the environment 
  • I would suggest to have a look at the worst Market Crashes and how these can help in different environments
  • You probably want a mix of them, especially in a low yield environment

Why you need Bonds & Inflation Protection

Rolling Annual Returns for 10 Year Period - 60% Equity 40% Diversifier Portfolio (1976-2020)

Traditional Bonds

Option #1 - Government Bonds

Government Bonds will react better in a crisis and allow you to (i) lower the overall volatility of your portfolio and (ii) rebalance quickly into cheaper Equities should you wish so

For European and UK Investors you need to remember to buy a currency-hedged Bond ETF to benefit from lower volatility of your portfolio

Option #2 - Blend Bonds

For the same maturity/duration profile Government Bonds have lower yield than Blend Bond Funds that include higher yielding securities like high quality Corporates or MBS

It’s a small trade-off of ultimate Protection vs. Income but I think that investing in a Blend Fund (which includes over 50% of Government Bonds) is a good balance

For European and UK Investors you need to remember to buy a currency-hedged Bond ETF to benefit from lower volatility of your portfolio

Inflation Protection

For Inflation Protection, Inflation protected bonds that started trading in the 90s should be the main asset. It can be supplemented with Gold.

Note, that you may also include your existing Real Assets as inflation hedge (e.g. Real Estate or a business) but remember these are not liquid and won’t allow you to rebalance into cheaper Equities during a crisis which is one of the primarily goals of Bonds in the portfolio.

Here is a full guide to Inflation Protection.

Option #1 - Inflation Protected Bonds

  • Inflation Protected Bonds should be the backbone of your inflation protection in your portfolio
  • For these bonds, both Bond Face Value and coupon are adjusted to inflation so you get inflation protection
  • For Treasury Inflation Protected Securities the real yield may be the same as for Treasuries but they won’t react the same way to inflation / deflation
  • TIPS will protect you against inflation but will under-perform relative to Tresuries if inflation turns out lower than expected
  • TIPS have a relatively short history and first issued in 1997. The Market is relatively small compared to Treasuries and may be more illiquid impacting prices in times of stress

Option #2 - Gold

  • Remember – while perceived as safe haven, Gold on its own is a very volatile asset – it it benefiting from tailwinds currently but may underperform in the years ahead (akin to 2013)
  • Adding a small allocation to Gold makes sense even though it doesn’t produce income since it is very sensitive to high inflation but somewhat inconsistent if inflation is mild
  • The above chart shows average annual returns over the prior 10-year period (i.e. one dot is an the average annual return that was generated at the time of exit e.g. 14% in 1987 after having invested 10 years before i.e. in 1977)
  • Gold had inferior overall returns but provided better downside protection in case of severe stress period (GFC)
  • Read how Gold reacts to different macro environments

#5 BONUS - What can I expect?

No losses if held over 7 years


Based on historical data, lengthening your time horizon increases your odds of positive returns – e.g. the adjusted* cyclist portfolio (with a 5% tilt towards Emerging Countries modelled in USD) with 70% Equities and 30% Bonds/Gold (I used 7.5% allocation to Gold and no Inflation Linked Bonds) didn’t experience any losses since 1976 if kept for over 7 years 

* given short track record of World ETF data I have kept today’s market weights to run this analysis – this assumes more benefit from US Stocks than was historically obtained 

Likelihood of losses based on holding period (1976-2020)

What could have happened if I held longer or needed to sell earlier?

The cyclist 70% Stocks 30% Bonds/Gold portfolio:

  • Would have generated an average annual return of 9.2% since 1976
  • Would have experienced a worst case scenario of positive 2% annual return if held for 10 Years
  • The same portfolio could have had an annual loss of 1% in the worst case if held for 5 years instead of 10 Years
  • If the time horizon was lengthened to 20 Years the minimal worst case annual return would have been a positive 5% annually  
  • While I focused here on limiting downside risk, the below graph shows that there were some exceptional double digit annual returns in some scenarios
Average Annual Returns (circled) and Annual Return Ranges for different Time Horizons (1976-2019)

Why not keeping the best historical portfolio?

  • In short, because investing 100% of the Equity portfolio in US Stocks would be optimizing the portfolio for past performance 
  • You can see from the chart above that the volatility of your portfolio was historically reduced for a global portfolio vs US Market
  • US Economy dominated the world post World War II – this is likely to change over the next 30 years. While US stocks outperformed both Developed countries ex-US and Emerging Markets, this is far from guaranteed over the long term with emergence of  e.g. China and India
  • Bonds have returned 6.8% since 1976 – this won’t be reproduced anytime soon 
  • In the past, Stock/Bonds mix wasn’t materially different to 100% Stocks return (on average) – this is also unlikely and you need more diversifiers

Illustrative Long Term Performance

Adjusted for Low Yield Environment

The graph shows the Portfolio Balance of 1,000 invested now for a period of 30 years

Bond Yields have been overriden to 2% to account for current low yield environment. Other asset class returns have been used based on the averages from 1976 until 2020. The Portfolio yields 7.4% after accounting for fees (modelled as 0.3% for the entire portfolio)


Choose your Boglehead, but most importantly stick with your strategy


  • Berlinda Liu, CFA and Gaurav Sinha (SP Global), ‘Percentage of Active Funds outperformed by their benchmarks over 10 and 15 years’ (as of H1 2020), S&P SPIVA Scorecards 
  • Jared Kizer, Sean Grover (May 2017), ‘Are REITs a Distinct Asset Class?’, Available at SSRN
  • Cliff Asness, Andrea Frazzini, Ronen Israel, Tobias J. Moskowitz, Lasse H. Pedersen (2015), ‘Size Matters, If You Control Your Junk’, AQR 
  • Aswath Damodaran (2020), Value Investing I Video – The Back Story , Value Investing II Video – A Lost Decade!, Value Investing III – Rebirth, Reincarnation or Requiem?
  • Avanidhar Subrahmanyam (2018), ‘Equity market momentum: A synthesis of the literature’, Pacific-Basin Finance Journal
  • Eugene Fama, Kenneth French (June 1992)The Cross-Section of Expected Stock. Returns, The Journal of Finance

Good Luck and keep’em* rolling !

(* Wheels & Dividends)


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About Raph Antoine 84 Articles
Raph Antoine is a Portfolio Manager and Institutional Advisor that witnessed first-hand the 2008 Global Financial Crisis and the 2011 European Debt Crisis working for some of the most prestigious names in the financial industry. Raph has experience across multiple asset classes including Fixed Income and Equity products as well as Special Situations and Restructurings in multiple jurisdictions. Raph holds an MSc in Financial Engineering and is a CFA (Chartered Financial Analyst) Charterholder. He usually rides one of his two bikes. Rarely, a Canyon Ultimate CF SLX 8.0 (that is currently in family's attic) and most of the time a Gravel Pinnacle Arkose (his favourite) that he used to Cycle the World.
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1 year ago

This is a great and well put together article! I have always been a statistics lover, so I really enjoyed all the different graphs.

Darren Smith
Darren Smith
1 year ago

Great article. What are your thoughts on Bitcoin being a store of wealth and considered by some as a possible Gold 2.0?
Darren Smith

1 year ago

For the “long” term, if you’re starting to invest (i.e. in your twenties or thirties), risk-adversity can cost much more than studied risk-taking. I suggest investing 100% in passive broad index low-cost ETF or mutual funds at this early phase, because statistically, risk of loss in an index stock-fund is almost nil after fifteen years. Even if you do lose everything, you’ll be in your forties with ample time (two decades) to recover. Failure to take this bold step by keeping 30% in bonds, which are subject to erosion by inflation, can cost dearly in stunted growth of the portfolio over… Read more »

1 year ago

You propose about 26% of invested equities be allocated to international markets (developed and emerging markets). Isn’t that too much, esp since currency risk is such a significant uncontrollable risk factor that even in developed markets, international investing is speculative at best. For instance, any appreciation of international equities may be completely erased by changes in currency exchange rates. I think international equities, because of these uncontrollable exchange rate issues, are a gamble, not an investment, and their allocation should be limited to 10%….Any thoughts?

1 year ago

This just has so many great charts and insights on returns and asset allocation. There is a lot of fluff out there but you are providing quality work. Thank you

1 year ago

Am not going to change what i have been doing last 20 years but if i had read this 20 years ago i would have.

1 year ago

This is a fantastic article. I’ve just started my investing portfolio. I’m 30 years old and already have a few properties, mostly with about 70% mortgage that I rent out on Airbnb to great returns as well as my day job. I’m looking to differentiate from real estate now and thinking of the below portfolio:  Developed markets (MSCI World) = 75%  Emerging markets (MSCI Emerging Markets) = 5%  Bonds (Xtrackers Global Sovereign UCITS ETF 1C EUR hedged – I live in Europe) = 5% LU0378818131 Gold ETC (iShares Physical Gold ETC) = 5% IE00B4ND3602 “Differentiating ETFs” (Automation, Digitasation, Digital security… Read more »

1 year ago

Many thanks for the great article, I found it to be one of the best from a huge number of materials I came across. I understood the concept of having an overweight preference to a specific country / area like Emerging markets (since you can separate ETFs into EM, Developed ex US, US, etc), but how should one behave if I would like to be overweight in a specific sector or theme, like clean energy or AI for instance, or perhaps being overweight in a specific country like Russia, would it be possible to implement these themes in the global… Read more »

1 year ago

I discovered your blog a couple of days ago and I’m binge reading most of your posts. Wow, thank you so much for the immense value 🙂

About this one, I think the golden Retriever and the World Cyclist are too close. My first “not a Golder Retriever” investing stage was much closer to the Banker (without the Active part), i.e. a regional handmade split (US, EU, Pacific, Emerging), plus a couple of extras like Small Caps and High Dividends. A lot of “active” in picking my recipe.

1 year ago

Hello, I have a technical question (maybe it is described somewhere already) about two topics: rebalance reinvesting (invest regularly each month) so: Rebalance: is there any way to automate that or at least get alerted that I need to do that Let’s say equities overperformed and gained 10% toward bonds. How should I rebalance? By selling stocks and then buying Bonds or just by investing more money and just buying Bonds? With the selling scenario, I understand that both selling fees and taxes will lower returns Reinvest When I want to invest let’s say 1000 E each month, do i… Read more »

1 year ago

Hi, I have just read interesting paper from Vanguard which compares how TIPS and Gold deal with unexpected inflation. It looks like that short term TIPS offer more consitent protection but due to lower beta they will not protect the portfolio but only allocated money. Gold is less consitent but due to higher beta can sometimes give broader protection ( Interesting trade off 😉

1 year ago
Reply to  Raph Antoine

Looking forward to your articles on bonds! Especially that bonds are getying a lot “bad PR” mostly based on references to 1940-1980 (aka increasing interests environment). Guess a diversification and convexity will be important words in this context 😉 I’m particulary interested how rising interests affects bond ETFs as they are selling and buying bonds to maintain declared duration/index (read some stuff but still unclear for me).

1 year ago
Reply to  Raph Antoine

Hi, I’m just considering what is the role of inflation protection – e.g. gold – for EU investor with global equity portfolio (e.g. FTSE All World). If there is a high inflation in your home country, global equity ETF will provide inflation protection anyhow (gold do not care about your home country inflation anyhow)? If there is high inflation in US, your home country bonds will stand still?

1 year ago
Reply to  Raph Antoine

Interesting reading! Thanks 🙂 Of course the key point is that inflation protection part in a portfolio should protect given home country purchase power (hedge agains local inflation). In this case global equities works quite nice for countries with „minor” share in global equity (most of EU countries).

Ps. Despite reading was good I’m still sceptical towards commodities (excl. Gold;) For me it is either a „speculation”, either a game for front runners & big guys playing with the market;)

1 year ago

Great website, thank you. I would be very interested to know your thoughts on Ray Dalio’s claim that bonds are soon to be worthless.

Dividend Power
1 year ago

Great article, most do not know how to build an investment portfolio.

6 months ago

Hi Raph, I believe like Kumiko that “emerging Asia looks to still be underestimated (according to her) in Global ETF Benchmarks”. Why don’t use directly the Msci emerging Asia Index? This is not only a simply forecast, but historically the index has a better perfomance compared t the Msci emerging market. Thank you very much.

6 months ago

Hi Ralh, If we consider 1 interest rates will increase, but hardly reach those of the past; 2 we come from a long and strong bull market and therefore a mean revertion effect is to be expected for equities, do you think that the portfolio of Kumiko will always manage not to suffer losses if kept for 7 years? thank you very much.

6 months ago
Reply to  Raph Antoine

Do you think it is necessary to increase the duration? Thank you so much.

6 months ago

This website is a real gem for European investors. The information is accurate and very well presented. This resource is in my top three for evidence based investing, along with the wiki and Ben Felix’s youtube channel.

I have recommended your website to a few people already and I hope they take the time to read the articles. The information is potentially life changing for people in their early 20s.

Thank you for the time and effort, it’s really appreciated!

Greetings from Bulgaria

4 months ago

Raph, I’m confused on the bonds piece – why not allocate the entire bond 30% to go into inflation linked bonds in the current environment?

4 months ago
Reply to  Raph Antoine

Ahhh I see – thanks, that makes sense. You’re a great teacher – thanks for sharing your knowledge!

3 months ago

Hi All, Thanks Raph for this great blog, sharing your insights and what to look out for. I’m one of those 8:30 to 6 guys, short of being kicked by the company and all the time only focusing on 8:30 to 6 and forgetting about myself. I want to do now at least do it right for my sons, now 19 and 21. I’ve read quite a few of your articles and decided to start for each with a an investment of 20k EUR (I’m though employed in Singapore) with a time horizon of 20 years, 50% Vanguard All World,… Read more »


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