Build your perfect portfolio starting with 33/33/33

Building the perfect portfolio involves a crucial step: deciding on your asset allocation. There are a number of ways you can tackle this. Traditional approaches have included risk tolerance surveys and data-driven analysis into the likelihood of a negative return from different asset allocations, but these can be tricky to translate into an actual asset allocation. There is a more straightforward option - starting with the 33/33/33 blueprint. 

Here's a closer look at asset allocation and how you can use the 33/33/33 blueprint as a stepping stone toward building your perfect portfolio.

What is asset allocation and why is it important?

In simple terms, asset allocation is how you divide your portfolio across different asset types. The main asset classes are shares (Australian and global), cash, property and fixed-interest investments. Others include commodities, currency, private equity and non-investment grade debt. 

There's some debate about the actual impact asset allocation has on a portfolio's returns but some studies have found that it could drive as much as 90% of the investment outcome for an individual. Regardless of the exact figure, one thing is clear: asset allocation is critical, and it's something you can control.

The 33/33/33 blueprint 

The 33/33/33 blueprint involves starting with:

• 33% cash and high-quality fixed interest
• 33% Australian shares
• 33% global shares

You can then tweak and tailor the allocation to suit your own needs and goals.

Here's a look at why a 33/33/33 portfolio can be a sound starting point. Let's start with the cash and fixed interest component. This is the 'safe' part of the portfolio that helps reduce the impact of volatility and allows quick access to funds. It can also be a good source of income - you can earn about 5% a year at the moment. Cash will play a role in most portfolios and from a strategic point of view, it can be a good idea to have money easily accessible that you can use to buy discounted assets when there is a downturn.

A mix of Australian and global shares also makes sense. Both have historically delivered strong returns, though at different times.

For instance, Australian shares have averaged 9.6% annually, while global shares averaged 10.3% since January 1970, according to Vanguard. In the 12 months to the end of December 2024, though, global shares outperformed Aussie shares (11.4% v 31.2%). But the five-year period from September 2004 to September 2009 saw a return of -0.9% a year for global shares while Australian shares returned 10.4% a year. This suggests there's an argument for both in a portfolio. 

Franking credits add extra appeal to Australian shares while global shares offer an extra layer of diversification.

Tailoring the 33/33/33 blueprint

The beauty of the 33/33/33 blueprint is its flexibility. The idea is to use it as your starting point and then tailor the approach to your own situation. 

Here are a few key examples of decisions around tailoring. An investor with a mortgage is unlikely to hold much in the way of cash or fixed-interest assets, as the interest on their mortgage will probably be higher than the interest they can earn on cash. They may hold Australian and global shares, with little or no cash. 

Someone close to retirement may be enthusiastic about the benefit of franking credits as a source of extra returns in the tax-free retirement environment. They may allocate a little more funds from global shares toward Australian shares.

An investor who is very engaged with their portfolio might like the idea of adding an allocation to 'alternative assets' such as hedge funds or private equity. They may tweak their allocations to cash/fixed interest and Aussie and global shares to allow funds to be invested in these alternatives. 

There is also scope to consider what fits within an asset class. For example, within a global share portfolio, some people might be content using index-style investments such as global exchange-traded funds (ETFs) and index funds. Others might look to add additional sources of risk and return, for example, including emerging market investments, or a tilt to a specific region. 

Key takeouts

The asset allocation decision is an important one. If we look at the historical data over 10 or more years, a fairly simple asset allocation of 33% in cash and high-quality fixed-interest investments, 33% in Australian shares and 33% in global shares would have delivered a satisfying result for most investors. By starting here and making adjustments based on your individual goals, you can create a portfolio designed for long-term success.

Ready to start investing? InvestSMART has a range of diversified portfolios that all come with a capped management fee. If you'd like help selecting the right style of portfolio for you check out our free statement of advice quiz. It will show you which InvestSMART ETF portfolio may best suit your goals and investment timeframe.