Introduction to 7Twelve Model
By: Craig L. Israelsen, Ph.D.
This brief report introduces a multi-asset portfolio design that brings a higher standard to the notion of “diversified”. This design is referred to as the 7Twelve portfolio.
The name “7Twelve” refers to “7” asset categories with “Twelve” underlying mutual funds. The seven asset categories include: US stock, non-US stock, real estate, resources, US bonds, non-US bonds, and cash. The 7Twelve model is shown below in Figure 1.
The 12 mutual funds utilized in the 7Twelve design can be index funds, exchange traded funds (ETFs), or regular mutual funds. All 12 funds are equally weighted in the “core” 7Twelve model (each with an allocation of 8.33%). The equal-weighting is maintained by periodic rebalancing. There are also three “Age Based” versions of the 7Twelve model that progressively reduce the risk of the portfolio.
You can build a 7Twelve portfolio using mutual funds from a variety of mutual fund companies. This report outlines a 7Twelve portfolio built with ETFs and index funds—referred to as the “Passive” 7Twelve model.