Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>

Where in the World Are You Invested?

Betterment's portfolio diversification includes holdings across 102 countries. Explore where your money is invested with our widget.

Articles by Dan Egan

By Dan Egan
Managing Director of Behavioral Finance & Investing, Betterment
Published: March 19, 2014 | Updated: July 22, 2018

Betterment's global portfolio diversifies risk on a number of levels including currency, interest rates, credit risk, monetary policy, and economic growth.

Explore diversification by risk level with our interactive widget.

One of the fundamentals of good investing is good diversification. But it’s hard to do well. Here at Betterment we have done that work for you—every customer can easily invest in a globally diversified portfolio of up to 12 ETFs.

We picked those 12 based on careful consideration. For the bond basket, we needed to balance domestic and international interest rate risk and credit risk; and for our stock basket, we needed an appropriate mix of sectors, countries, and capitalization factors.

The result is that our customers can access a portfolio that is invested in 102 countries and in more than 5,000 publicly traded companies across the world—along with exposure to government debt, corporate bonds, securitized debt, and supranational bonds with a range of creditors and interest rate sensitivities.¹

Explore our diversification

In the diagram below, you can explore the relative weights of each of our portfolio components (on the left) with their geographic distribution (on the right) for any selected level of risk. The connections between the two sides represent the weight of a particular combination.

Portfolio Diversification by Country

Select a different stock allocation by dragging the slider, and roll over each component for details.

Why go global?

As we mentioned above, it’s hard to diversify well. One problem for do-it-yourself investors is that they tend to home-bias their portfolios. They prefer to invest in companies they are comfortable with—because they know them, or they are close to home. Unfortunately, that means they are less diversified than they should be, and expected performance may suffer.

Betterment’s portfolio avoids this home bias by reflecting global stock market weights. U.S. stock markets make up about 48% of the world’s investable stock market–the remainder is international developed (43%) and emerging markets (9%). You can see this on the fact sheet for the MSCI All-Country World Index.

By using the world’s markets as its baseline, the Betterment portfolio diversifies risk on a number of levels including currency, interest rates, credit risk, monetary policy, and economic growth country by country. Even as economic circumstances may drag down one nation, global diversification decreases the risk that one geographic area alone will drag down your portfolio.

To diversify risk

When we selected our bond basket components, we considered which factors affect bond returns—interest rates risk and credit risk. Then we selected funds that would diversify those risks.

For example, with high-quality domestic U.S. bonds, the risk comes from a potential rise in interest rates, which will cause a fall in value for longer-dated bonds. To diversify away from this specific U.S. interest rate risk,  we picked another bond asset with low correlation—in this case, high-quality international bonds. The particular fund we used, BNDX, hedges out all currency risk; and includes bonds from stable international governments and international issuers, each of which have their own interest rate risk and credit risk.

We also invested a smaller proportion in dollar-denominated emerging market bonds. These tend to have much higher coupons (4.9% at time of publication), but also more volatility in price, as they have a higher exposure to credit risk from international issuers.

To capture growth

Among our various stock basket components, we include international stocks in order to benefit from growth overseas in developed markets, including the U.K., Japan, Germany, France, Australia, and Switzerland. This helps our portfolio maintain similar expected returns as more concentrated domestic portfolios, but with lower risk.

Then with the emerging markets stock component (VWO), we can capture growth in small but expanding markets such as Brazil, India, and China. This further diversifies our portfolio, and should boost expected returns, particularly at higher risk allocations.

About the data

All countries with less than 1% of a given asset class have been grouped into the “all others” category. The international data for this diagram is based on the Vanguard profiles for VWOBBNDXVEA, and VWO on March 12, 2014.  Note that the relative weight of certain countries will likely change slightly over time. You can see every fund in our portfolio here.

The interactive chart was produced by Joe Jansen.

¹ The portfolio invests in 102 countries at all but 100% bonds and 100% stocks.

 

Recommended Content

View All Resources

Health Savings Accounts: The Sharpest Tax Tool In The Shed?

As an investor, you may be thinking about funding an HSA but are unsure about whether it is a useful financial planning tool. Here are six different scenarios for how an HSA can work for you.

Investing’s Pain Gap: What You Put Up With To Earn Returns

Markets are frustrating—especially when you look at a year’s worth of returns. Year to year, you can easily experience what we call the pain gap. The key is to not let the pain gap create a behavior gap between your account and market performance.

Should I Own Stock in the Company Where I Work?

Buying company stock at a discounted price can be worthwhile—if you remember to diversify as soon as possible. The answers to these four questions can help you make your decision.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

See details and disclosure for Betterment's articles and FAQs.