Case: building a diversified portfolio

This case walks through assembling a portfolio from a goal and a risk profile, the way the Portfolio and Risk Management tracks describe it. Every name and number below is a hypothetical illustration, not advice.

Step 1 — Define the goal and horizon

Start with the person, not the products. Our hypothetical investor:

Is 35 years old, with a stable income.
Wants to retire in roughly 25 years.
Has an emergency fund already set aside (3–6 months of expenses), so this money will not be needed soon.

A long horizon and no near-term need for the cash means this investor can tolerate volatility in exchange for higher expected returns.

Step 2 — Pin down the risk profile

A simple way to gauge tolerance is the "sleep test": how large a temporary drop can you watch without selling in a panic? Our investor decides a peak-to-trough fall of around 30% would be uncomfortable but survivable. That points to a growth (not aggressive, not conservative) profile.

Step 3 — Choose an asset allocation

Allocation — the split across asset classes — drives most of the long-run result, far more than picking individual winners. A growth profile might land on:

Equities (stocks / ETFs)        60%
Real estate (REITs / FIIs)      15%
Fixed income (bonds)            20%
Cash / liquidity                 5%

Step 4 — Diversify inside each sleeve

Within the equity sleeve, spread across geographies and sectors so no single shock dominates:

Domestic broad-market ETF       25%
International developed ETF      20%
Emerging-markets ETF             8%
A few individual convictions     7%

The same logic applies to fixed income (mix maturities) and real estate (mix segments).

Step 5 — Write the rules before you buy

Decide in advance how you will rebalance — for example, "review once a year, and trim any sleeve that drifts more than 5 percentage points from target back to target". Writing the rule down is what stops emotion from rewriting the plan during a sell-off.

Step 6 — Document and revisit

Record the target weights, the reasoning, and the rebalancing rule in a one-page policy statement. Revisit it when life changes (a new goal, a different horizon), not when the market changes. This single discipline — separating plan changes from market noise — is the throughline of the entire Risk Management track.