**Considerations:**

1.) Balance Risk On/Off based on personal context. For this example I use my own, (80/20)

2.) Have some international risk (bond and stock) exposure

3.) Maximize Diversification given an objective criterion, enter

**Diversification Ratio**.

4.) Achieve significant exposure to all equity style factors (Market, Quality, Size, Value, Momentum, BAB) [1]The diversification ratio is the ratio of the weighted average of volatility divided by the portfolio volatility

*See exposure (loadings) with its T stat.*

5.) No leverage

6.) Try to get closer to risk parity [2]

Step 1: Start with your default option of 3 Fund Portfolio

**[Diversification Ratio = 1.11]**:

US Equities Total Market (VTI) - 50%

International Equities Total Market (VXUS) - 30%

US Fixed Income - Total Bond Market - (BND) - 20%

Step 2: Add US Long Term Treasuries

**[Diversification Ratio = 1.31]**:

US Equities Total Market (VTI) - 50%

International Equities Total Market (VXUS) - 30%

US Long Term Treasury - (VGLT|EDV) - 20%

Step 3: Add US Equities Size/Value Tilt

**[Diversification Ratio = 1.35]**:

US Equities Total Market (VTI) - 25%

US Equities - Small Cap Value (IJS|VIOV) - 25%

International Equities Total Market (VXUS) - 30%

US Long Term Treasury - (VGLT|EDV) - 20%

Step 4: Add US Equities Momentum Factor Exposure

**[Diversification Ratio = 1.38]**:

US Equities - Momentum (MTUM) - 25%

US Equities - Small Cap Value (IJS|VIOV) - 25%

International Equities Total Market (VXUS) - 30%

US Long Term Treasury - (VGLT|EDV) - 20%

Step 5: Add Emerging Market Bonds

**[Diversification Ratio = 1.45]**:

US Equities - Momentum (MTUM) - 25%

US Equities - Small Cap Value (IJS|VIOV) - 25%

International Equities (VXUS) - 15%

Emerging Market Bonds (EMB|VWOB|VEGBX|LEMB) - 15%

US Long Term Treasury - (VGLT|EDV) - 20%

Step 6: Incorporate Low Volatility Funds[3] (US and International)

**[Diversification Ratio = 1.49]**:

US Equities - Momentum (MTUM) - 10.625%

US Equities - Low Volatility (USMV) - 10.625%

US Equities - Small Cap Value (IJS|VIOV) - 10.625%

US Equities - Small Cap Low Volatility (XSLV) - 10.625%

Global Low Volatility Equities (VMNVX) - 15%

International Equities Total Market (VXUS) - 8.5%

Emerging Market Bonds (EMB|VWOB|VEGBX|LEMB) - 15%

US Long Term Treasury - (VGLT|EDV) - 20%

Step 7: Optimize exposure in US equities[1] (Equity Style Factor Premia)

**[Diversification Ratio = 1.49]**:

US Equities - Momentum (MTUM) - 8.36%

US Equities - Low Volatility (USMV) - 8.36%

US Equities - Small Cap Value (IJS|VIOV) - 10.14%

US Equities - Small Cap Low Volatility (XSLV) - 10.14%

Global Low Volatility Equities (VMNVX) - 15%

International Equities Total Market (VXUS) - 14%

Emerging Market Bonds (EMB|VWOB|VEGBX|LEMB) - 14%

US Fixed Income - (VGLT|EDV) - 20%

Step 8: Optimize exposure in International Equities

**[Diversification Ratio = 1.54]**:

US Equities - Momentum (MTUM) - 8.36%

US Equities - Low Volatility (USMV) - 8.36%

US Equities - Small Cap Value (IJS|VIOV) - 10.14%

US Equities - Small Cap Low Volatility (XSLV) - 10.14%

Global Low Volatility Equities (VMNVX) - 15%

International Developed Small (ISCF) - 7%

Emerging Market Stocks (VWO|DGS) - 7%

Emerging Market Bonds (EMB|VWOB|VEGBX|LEMB) - 14%

US Long Term Treasury - (VGLT|EDV) - 20%

Notes:

[1]

[2]

[3] The low volatility exposure perhaps could be simplified to two funds.

Sector Exposure:

Cheers