FundManger

Portfolio Architectures

Building blocks of a modern portfolio.

The Foundation

Modern Portfolio Theory, in plain terms.

Modern Portfolio Theory (MPT), formalized by Harry Markowitz in 1952, treats a portfolio as a single object rather than a collection of individual bets. The core insight: combining assets that don't move together can reduce total portfolio risk without necessarily reducing expected return.

The "efficient frontier" describes the set of portfolios that deliver the highest expected return for a given level of risk. Points below the frontier are inefficient — a portfolio there is taking on risk without being compensated for it.

MPT has well-known limitations: it relies on historical volatility and correlation as proxies for future behavior, and it assumes rational, risk-averse investors — assumptions worth holding loosely rather than treating as fact.

Risk vs. Return — Efficient Frontier

Lower Risk Higher Risk Return

Conceptual curve for reference — not derived from live market data.

ETF Indexation

Why indexation became the default building block.

1

Cost

Expense ratios on broad index ETFs are typically a small fraction of actively managed alternatives, and cost compounds against returns just as growth does.

2

Transparency

Holdings and methodology are published and rules-based, so an investor can see exactly what they own and why.

3

Tax Efficiency

The ETF creation/redemption structure tends to generate fewer taxable capital gains distributions than actively traded funds.

Allocation Library

Equity, fixed-income, alternative and cash — by sleeve.

US Broad Market

EQUITY

Total-market or large-cap index exposure, typically the largest single position in a core sleeve.

International Developed

EQUITY

Diversifies away from single-country concentration and currency exposure.

Emerging Markets

EQUITY

Higher growth potential paired with higher political and currency risk.

Aggregate Bond

FIXED INCOME

Broad investment-grade exposure across government and corporate issuers.

Short-Duration Treasury

FIXED INCOME

Lower interest-rate sensitivity, often used for near-term liquidity needs.

Real Assets

ALTERNATIVE

REITs and commodity-linked exposure used in small satellite weights for inflation sensitivity.

Factor / Thematic

ALTERNATIVE

Targeted tilts such as value, quality or a specific sector theme.

Money Market

CASH

Highly liquid, low-volatility holding used for near-term spending needs and dry powder.

High-Yield Savings

CASH

FDIC-insured cash holding outside the brokerage account, useful for an emergency reserve.

Line chart representing diversified portfolio construction

Core-Satellite & Diversification

Structure the portfolio, then size the bets.

A core-satellite structure keeps most of the portfolio in broad, low-cost exposure while reserving a smaller allocation for higher-conviction or higher-risk positions — bounding how much any single view can affect the whole.

Diversification's benefit comes from combining assets with imperfect correlation, not simply from owning many positions. Ten highly correlated holdings diversify less than three genuinely uncorrelated ones.

Model an allocation in the simulators