Aronson Family Taxable Portfolio description

Mar 19, 2025 | 401Ks

1. Background and Philosophy

The Aronson Family Taxable Portfolio was created by Ted Aronson, a renowned asset manager and founding partner of AJO Partners, a Philadelphia-based investment firm. Aronson is a pioneer in quantitative investing and has been recognized for his expertise in systematic, rules-based investment strategies. His philosophy emphasizes diversification, low costs, and tax efficiency, which is reflected in this portfolio’s construction. The portfolio is designed for long-term growth while managing risk through broad asset class exposure.

2. Asset Allocation, Diversification, and Risk

The portfolio consists of 11 ETFs spanning four major asset classes:

  • Emerging Market Equity (10%): EEM (iShares MSCI Emerging Markets ETF)
  • US Equity (40%): IJR (iShares Core S&P Small-Cap ETF), IJS (iShares S&P Small-Cap 600 Value ETF), IJT (iShares S&P Small-Cap 600 Growth ETF), VTI (Vanguard Total Stock Market ETF), VV (Vanguard Large-Cap ETF)
  • Fixed Income (30%): HYG (iShares iBoxx $ High Yield Corporate Bond ETF), TIP (iShares TIPS Bond ETF), TLT (iShares 20+ Year Treasury Bond ETF)
  • Foreign Equity (20%): VGK (Vanguard FTSE Europe ETF), VPL (Vanguard FTSE Pacific ETF)

Diversification: The portfolio is well-diversified across geographies (US, developed international, and emerging markets) and market capitalizations (large-cap, small-cap, value, and growth). It also includes a mix of bonds (Treasuries, TIPS, and high-yield) for stability. Risk Level: Moderate to moderately aggressive. The 30% fixed-income allocation provides some downside protection, while the small-cap and emerging market exposures add growth potential (and volatility). Pros:

  • Broad diversification reduces single-asset-class risk.
  • Low-cost ETFs keep expenses minimal.
  • Tax-efficient holdings (e.g., VTI, VV) make it suitable for taxable accounts.

Cons:

  • Small-cap and high-yield bond allocations may increase volatility.
  • No explicit commodity or real estate exposure.
  • Rebalancing may be required to maintain target allocations.

3. Application for Retirement Accounts (401(k) and IRA)

This portfolio can be adapted for retirement accounts with minor adjustments: For 401(k) Investors:

  • Match each ETF to the closest available fund in your 401(k) plan. For example:
    • VTI/VV → Use a US total stock market or S&P 500 index fund.
    • EEM → Use an emerging markets fund or international stock fund.
    • TLT/TIP → Use a long-term Treasury or inflation-protected bond fund.
  • If a specific fund (e.g., IJS or VGK) isn’t available, allocate to the broader asset class (e.g., small-cap value → US small-cap; VGK → international developed stocks).
  • Many 401(k) plans lack commodity funds—allocate that portion to equities instead.

For IRA Investors:

  • IRAs offer more flexibility, so you can replicate the portfolio exactly using the listed ETFs.
  • Consider tax efficiency: Place bond-heavy ETFs (e.g., TLT, HYG) in tax-advantaged accounts and equity ETFs in taxable accounts.

This portfolio is suitable for investors seeking a balanced, long-term strategy with moderate risk. Regular rebalancing (annually or semi-annually) is recommended to maintain the target allocations. Rule of Thumb:

  • For stock funds, prioritize index funds, especially low-cost index funds.
  • For bond funds, prioritize core bond funds or high-guality actively managed total return bond funds (ifavailable).