# Case: three model portfolios and the onboarding questions

> Design three model portfolios and the three questions that place a new user in one of them.

- Course: [Long-Term Investing: Index Funds, Risk and Your Own Behavior](https://productovi.com/courses/long-term-investing.md)
- Module: Building the model portfolios
- Lesson 24/32, ~32 min
- Source: https://productovi.com/courses/long-term-investing/case-model-portfolios

## The portfolio review

**Alex Tutor:** Late August at Zapas, less than three months before the public launch. Today the model portfolios go to review: three mixes, the onboarding questions and the rules behind them.

**Ethan:** My draft is simple. Careful is 0/100 and we call it "safe". Growth is 100/0, default for anyone under 35. Balanced is whatever sits in between.

**Grace:** Let's test it against the table we built in July. Every number is real, after inflation, from the synthetic Tessaro years 1–40.

**Dataset (CSV):** [Model mixes over 40 synthetic years, real terms](https://productovi.com/datasets/long-term-investing/case-model-portfolios/portfolios.csv)

Stocks = Tessaro World; bonds = half Tessaro Short Bonds, half Tessaro Long Bonds; rebalanced every year-end. geo_real_pct = real return a year; worst_real_year_pct and worst_year; max_drawdown_real_pct from peak year to trough year; years_underwater from the peak until back above it (not_by_40 = still below at the end of year 40); real_value_of_1000 after 40 years. Synthetic data.

**What 1,000 dollars became in 40 years, real terms**

| Stocks/bonds, % | Real value of 1,000 |
| --- | --- |
| 0/100, all bonds | 1932 |
| 20/80 | 2865 |
| 40/60 | 4110 |
| 60/40 | 5700 |
| 80/20 | 7638 |
| 100/0, all stocks | 9875 |

*Real dollars after 40 years, synthetic Tessaro history.*

**Worst real year and largest real fall, by mix**

| Stocks/bonds, % | Worst year | Largest fall |
| --- | --- | --- |
| 0/100, all bonds | -12.7 | -22.8 |
| 20/80 | -15.1 | -25.2 |
| 40/60 | -17.6 | -27.6 |
| 60/40 | -20 | -30 |
| 80/20 | -24.3 | -38 |
| 100/0, all stocks | -31.8 | -48.2 |

*% in real terms, synthetic Tessaro years 1–40. Worst year: year 36 for 0/100 to 60/40, year 22 for 80/20 and 100/0.*

**Sofia:** The 0/100 has the smallest fall, −22.8%. But it never got back above its year-34 peak.

**Grace:** And it made 1.7% a year. "Safe" would be the wrong word twice: it can fall, and it can fail a long goal by barely growing.

**Ethan:** So where does short-term money go? Someone saving for a car next year will still pick Careful.

**Grace:** Nowhere in these three. Under about two years the onboarding should say so and point to a cushion or a deposit. Careful is for goals five or more years away.

> **Exercise:** Which mix makes a more defensible "Careful" portfolio for goals five or more years away, judged on the synthetic Tessaro table?

**Ethan:** OK, Careful gets some stocks. But Growth at 100/0 is still the best long-run number. Young users should get it by default.

**Grace:** How many people hold through a 48.2% fall and 11 years under water? Compare it with 80/20: 5.2% a year instead of 5.9%, a −38.0% fall and 8 years.

**Sofia:** And 80/20 still keeps most of the long-run gain.

> **Exercise:** In the synthetic Tessaro table, \$1,000 in 100/0 grew to \$9,875 in real terms over 40 years and \$1,000 in 80/20 to \$7,638. How many dollars more did 100/0 end with?

**Sofia:** Then the questions decide who gets what. Two for capacity, one for tolerance?

**Grace:** That works, if each has a concrete answer. The lower of the two scores picks the portfolio.

![Three onboarding questions (horizon, income and cushion, reaction to −30%) give a capacity score and a tolerance score; the lower one picks Careful, Balanced or Growth.](https://productovi.com/courses/long-term-investing/diagrams/m6-l4-placement.png)

*Every card shows real return, worst year, largest fall and years under water.*

> **Exercise:** Match each onboarding question to what it measures.

**Ethan:** Won't users just answer the third question bravely to get Growth?

**Grace:** Some will. That's why the question uses their own money, \$7,000 out of \$10,000, and the card shows the fall again before they confirm. In September we'll see how people actually behave.

**Sofia:** Should each card name its own worst year? They differ by mix.

**Grace:** Yes. Check which event hurt which mix most before you write the copy.

> **Exercise:** In the synthetic Tessaro table, the worst real year of the 80/20 mix was year 36, the high-inflation year.

**Ethan:** And the cards themselves? I want them short.

**Grace:** Short, but with the same four numbers on every card, labelled as synthetic history. And one line on the rules: deposits go in at once, and we rebalance with a 5-point band.

> **Exercise:** Which items belong on every model-portfolio card in the Zapas app? Select all that apply.

**Sofia:** One more edge case: someone whose horizon says Growth but who would sell at −30%.

> **Exercise:** A new user answers: horizon 25 years, steady salary, six months of savings, but "If my \$10,000 showed \$7,000, I would sell". Which portfolio does Zapas suggest, and what does the screen tell the user? Answer in 2–3 sentences with numbers from the table.

**Grace:** Now the whole thing. Ethan takes your version to the launch review next week.

> **Exercise:** Design Zapas's three model portfolios and the onboarding questions that place users.

**Grace:** That's a portfolio set we can defend in front of users, not just in front of Ethan. September will test it with real behavior: the users themselves.

> **Key ideas**
>
> - Careful is not "all bonds": 0/100 fell 22.8%, hadn't recovered by year 40 and grew 1.7% a year; 40/60 fell 27.6%, recovered in 6 years and grew 3.6%.
> - The last step to 100/0 costs the most risk: −48.2% and 11 years under water vs −38.0% and 8 years for 80/20.
> - Three questions (horizon, income and cushion, reaction to −30%) place users by the lower of capacity and tolerance.
> - Run the portfolios by rules: deposits at once by default, rebalancing by a band.
> - Every card shows real return, worst year, largest fall and years under water, labelled as synthetic history.

> **Educational, not advice**
>
> This lesson explains how investing works; it doesn't tell you what to buy. Investments can fall and you can get back less than you put in. Check the current rules where you live or ask a licensed professional.

- Previous lesson: [Regular amounts, a lump sum and rebalancing rules](https://productovi.com/courses/long-term-investing/contributions-rebalancing.md)
- Next lesson: [The behavior gap: fund return vs user return](https://productovi.com/courses/long-term-investing/behavior-gap.md)

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