7Twelve Portfolio

The 7Twelve Portfolio by Craig Israelsen is an asset-based approach to diversification that balances portfolio returns by investing in a wide variety of unique asset types.

Asset Allocation
Author
Overview
Books
Articles
Alternatives
Performance

Asset Allocation

12.5% Large Cap Blend¹
12.5% Small Cap Blend¹
8.3% International Stocks
8.3% Emerging Markets
17% Intermediate Bonds²
8.3% International Bonds
8.3% Cash
16.6% Commodities³
8.3% REITs

Asset Notes

1. Israelsen specifically recommends equal parts large cap blend, mid cap blend, and small cap blend. The data here simplifies that to half large caps and half small caps. Because most large cap index funds include mid caps and many small cap funds also have more mid caps than you might expect, the results should be very similar. But if you want to follow his recommendation to the letter, you might consider looking for a separate mid-cap fund.

2. Israelsen specifically recommends equal parts nominal bonds and TIPS. Since I don’t have specific data for TIPS, I allocated this portion to intermediate term bonds. While this is a pretty good proxy that should model the design intent reasonably well, be sure to read Israelsen’s justifications for why he chooses the bonds he does.

3. He specifically recommends 8.3% commodities and 8.3% natural resources, but good data for natural resources is not available. Keeping with his theme of having two equal segments in the “resources” category, I allocated the natural resources to the commodities portion. There’s a decent amount of overlap in commodities and natural resources ETFs, so I anticipate this will not change the results all that much.

4. The Portfolio Charts tools use round numbers, so I reallocated the portfolio slightly while preserving the original design intent as closely as possible.

Local Interpretations

Find country-specific versions and appropriate ETFs using the Performance charts.

Author

Craig Israelsen

Craig L. Israelsen, Ph.D., is an Executive-in-Residence in the Financial Planning Program at Utah Valley University. He talks about the 7Twelve Portfolio in his book 7Twelve: A Diversified Investment Portfolio with a Plan.

Overview

In contrast to the old-school definition of diversification in terms of company count, the 7Twelve Portfolio seeks to enhance performance and reduce risk by diversifying among a wide variety of different asset types. The name is derived from the 12 different funds in the portfolio spread across 7 different asset classes.

US Stock (large, mid, and small caps)
Non-US Stock (developed, emerging)
Real Estate
Resources (natural resources, commodities)
US Bonds (nominal, TIPS)
Non-US Bonds
Cash

Israelsen describes the thought process of mixing asset types as similar to making salsa, where individual ingredients may seem bland or way too spicy on their own but are all critical to the success of the recipe. The 7Twelve Portfolio assets are weighted in equal proportions, and he classifies it as a “core” portfolio that should be built around rather than tweaked. For example, his age based models all equally weight the same assets where the only difference is the percentage of cash that can be increased to reduce risk for older investors.

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