70 30 Portfolio: Will the ETF strategy pay off in 2025?

A global portfolio of ETFs with a 70-30 ratio is regarded as the absolute classic among investment strategies. But a lot has changed on the financial markets since then: Is the 70 30 portfolio still up to date, what are the opportunities and risks, and are there better alternatives? You’ll find the answers in this guide!

ETF 70 30 Portfolio explained

ETFs are now considered an ideal investment product for private investors, as they contain hundreds of shares (or other assets) and have very low costs. The choice is huge and the question ‘Which products should I include in my ETF portfolio?’ is not easy to answer. Simple, well-known strategies that have proven themselves time and time again are the best solution in most cases.

In addition to concepts such as the classic dividend portfolio consisting of dividend ETFs, the global portfolio in particular is an ideal approach, the aim being to cover as much of the global economy as possible by investing in equity companies. Such a broad positioning reduces the risks. Because even if a country’s economy weakens, things will always improve globally in the long term!

There are in turn several variants for the composition of such a global portfolio. Probably the best known is the 70 30 portfolio. Investors invest 70% in shares from industrialised countries and 30% in emerging markets. This mix combines the advantages and disadvantages of both regions and is intended to offer a higher return with acceptable fluctuations

Thanks to exchange-traded funds, the 70-30 portfolio is comparatively easy and inexpensive to implement: you can create a 70-30 ratio with just two ETFs! The purchase can be carried out with a broker such as Freedom24, Scalable Capital or Trade Republic for just a few euros.

You can find out more about my current favourite broker in the article about my Freedom24 experience.

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Why a 70 30 portfolio?

A 70 30 portfolio should offer some important advantages for investors. As always, the total return is of particular interest: By splitting the fund, investors hope to generate a higher profit per year than would be the case with a single exchange-traded fund.

At the same time, funds in a 70-30 ratio are easy and inexpensive to acquire. This strategy is therefore very easy to implement. For example, you could create two savings plans with the popular Neobroker Trade Republic and buy the right products completely free of charge.

The Trade Republic bonus is unfortunately no longer available. However, Trade Republic interest rates are still very attractive!

Further advantages arise from the broad distribution of such an approach. With a 70 30 portfolio, you get a large proportion of the world’s equity companies in your portfolio. This enormous diversification protects you well against possible losses: if an individual company loses value, this is hardly noticeable in your overall result, as the security only makes up a microscopic part of your investments.

Only if there are global problems do you have to fear for your returns. During the global financial crisis in 2008, for example, almost all regions were directly or indirectly affected. During this period, both emerging markets and industrialised countries recorded high losses.

Also note that 70 30 portfolios often have a natural lumpiness with US shares! The MSCI World, probably the most popular index of all, consists of almost 70 per cent US companies. If it makes up 70 % of your 70 30 portfolio, you effectively have around 50 % US stocks in your portfolio! It may therefore make sense to further divide up the industrialised countries’ share.

Numerous ETFs track the MSCI World Index. But which of these products is worthwhile? The answer can be found in my article ‘Best MSCI World ETF’.

Is an ETF 70 30 portfolio worthwhile?

The most important question with all strategies is certainly whether they are worthwhile at all. Or to put it more precisely: Does an investment strategy fulfil the expectations placed in it? In the case of the70 30 portfolio, the expectation is that it will offer a better return than a pure industrialised country investment without posing too high a risk.

This advantage is to be achieved through the 30% emerging market shares. They are considered lucrative, but also very susceptible to price fluctuations. At the same time, the volatility should be offset by 70% industrialised country shares, as these shares show somewhat less pronounced ups and downs.

However, a look at the results of typical index funds used in a 70 30 portfolio quickly shows that this strategy does not work! In most cases, the classic 70 30 portfolio generates lower returns than a pure industrialised country ETF and also suffers from higher volatility.

The reason for this failure is the emerging markets ETFs. They have not been able to fulfil their promise of higher average yields for a long time. The well-known MSCI Emerging Market Index, for example, only achieved a return of 3.8% p.a. over the last ten years. The costs for a fund – usually around 0.2% per year – must also be deducted.

The MSCI World, on the other hand, achieved a return of 10.36% over the same period! So if you had invested exclusively in the World Index instead of a 70 30 portfolio, your return would have been significantly better.

At over 10 %, the MSCI World (blue) achieved an annual performance more than 2.5 times better than the Emerging Markets Index (magenta).

Additional dangers

The classic 70-30 distribution should also be viewed negatively in terms of risk. Emerging markets are considered risky investments, which is why only a small share of 30 % is envisaged in this strategy. The long-term volatility of a typical MSCI Emerging Market Fund is around 16%, which is significantly higher than the fluctuation range of a world index.

The 30 per cent emerging market share adds additional risk to our portfolio. This part of the 70-30 strategy is therefore true; unfortunately, we are not getting anything in return in the form of higher returns and the original deal of ‘higher profits for higher risks’ has thus been cancelled.

In addition to the risks from Brazil, South Africa, India and the like, the industrialised nations also have their own problems, not corruption, attempted coups or wars, but share bubbles and recessions! With the classic 70 30 portfolio, you get around 50 % US companies in your portfolio.

You are therefore heavily dependent on developments in North America. If the US economy suffers, for example due to a bursting of the AI bubble or Donald Trump’s trade war with China, you will feel the impact in your total return.

Both parts of the 70 30 portfolio are therefore unable to deliver what the strategy originally promised. This approach is therefore not recommended in the traditional split with an industrialised countries fund and an emerging markets fund. However, with a little fine-tuning in the product selection, good results are still possible:

Alternatives to the ETF 70-30 split

Unfortunately, the hope of achieving higher returns with a manageable risk with a 70 30 portfolio is not realised. However, this does not mean that this strategy is entirely bad! For the calculations to date, we have only considered the standard variant, consisting of just two index funds.

However, if we expand this structure with several exchange-traded funds, we also have significantly more options at our disposal. By making a better selection, we can both reduce the risk and increase the potential returns.

However, those who want to keep things as simple as possible and use a maximum of two investment products also have options: The choice of funds is huge and some products can deliver exactly the returns that are lacking in the classic 70 30 portfolio today. This division can therefore remain a valid approach.

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70 30 Portfolio with optimised emerging market share

An alternative way to make the 70-30 world portfolio more attractive is to achieve a higher return in the 30% emerging markets component. This is quite easy to do by using other funds! The MSCI Emerging Markets Index, which is the standard for this strategy, simply does not offer the necessary price gains and should therefore be replaced by other products.

At the same time, however, we want to continue to invest in emerging markets such as India, Brazil, South Africa and China in order to maintain the broadest possible diversification. This severely limits the choice of possible investments, but some good opportunities remain.

For example, the MSCI Emerging Markets Select Value Factor Focus Index offers a better return than the regular EM index, filtering emerging market equities on the basis of key figures such as P/B ratio, cash flow or earnings forecasts. The Edge EM Value Factor UCITS from iShares is the only fund available to us for this purpose.

Its performance is impressive: While the Emerging Markets Index achieved an overall result of -1.28% over the last three years (at the time of writing), the Emerging Markets Select Value Factor Focus shines with a strong +22.72%! What’s particularly great is that the volatility remained exactly the same during this period, so you don’t have to bear any higher risk!

Only the slightly higher costs of 0.4 % per year speak against the EM Value Factor. However, in view of the 24% increase in profit over three years, this should be easy to get over.

The HSBC Emerging Markets Value ESG UCITS follows a similar concept, also filtering the Emerging Markets Index according to quality characteristics, but at the same time also focussing on ESG standards (environmental, social and corporate governance). It thus represents an ethical alternative with high returns of around 21% per year at the time of writing.

Please note, however, that this is still a young fund that has not yet reached the recommended minimum volume of EUR 100 million and that the two index funds presented are both accumulating funds, i.e. they do not distribute any dividends to investors.

If you decide in favour of regular payouts when choosing whether an ETF should be accumulating or distributing, you will also find what you are looking for. The SPDR S&P Emerging Markets Dividend Aristocrats UCITS focuses on companies from emerging markets that pay a high dividend. In this way, he achieved a return of around 20 % last year

This alternative can also ensure higher profits in your 70 30 portfolio without significantly increasing the risks. The Emerging Markets Dividend Aristocrats is only 1% more volatile than the standard MSCI Emerging Markets Index, which in practice should hardly matter.

70 30 Portfolio with diversified industrialised nations

The industrialised nations make up the majority of the 70 30 portfolio. In its simplest form, this area is mapped with an exchange-traded fund based on the MSCI World Index. Contrary to its name, the World Index does not contain shares from all over the world (this would be the MSCI All World), but only from ‘Western countries’.

In principle, it makes a lot of sense to invest a large part of our capital in shares from the USA, the European Union, the United Kingdom, Canada, etc. In practice, however, there is a central problem: most world indices focus too heavily on the United States!

This leads to a concentration that could escalate into significant losses in the event of problems, especially with the re-election of Donald Trump and his planned punitive tariffs on Chinese goods, the development of the US economy is uncertain.

Investors are well advised to minimise this risk. After all, in a standard 70 30 portfolio based on world and emerging market funds, around 50 % of your capital is invested in US shares! Better diversification is quite easy to achieve, and you have various index funds at your disposal.

The ‘World ex USA’ is an index of industrialised nations excluding the United States. It is currently modelled by two providers, Amundi and Xtrackers, each with an exchange-traded fund. Unfortunately, both products are still very new, so there is a lack of experience with regard to crisis resistance and returns.

Xtrackers World ex USA is a fairly new offering that tracks the industrialised nations excluding the United States.

To avoid clumping, it is also possible to make a larger investment in the European Union by simply shifting part of the 70% of your 70 30 portfolio specifically to an EU fund. For example, you can choose the Amundi Stoxx Europe 600, based on the Euro Stoxx 600 Index.

The Amundi Stoxx Europe tracks the 600 largest companies in the European Union.

How much capital you invest in this is of course up to you. For example, a 40-30-30 (USA, Europe, emerging markets) or a 50-20-30 split is conceivable. By increasing your exposure to EU shares, you are slightly better positioned, but not completely protected from a crisis in the USA – the economies of the two regions are too closely interlinked.

However, if there is a crash in North America, at least some of the damage should be absorbed in your portfolio. Avoiding such drawdowns is an important aspect of long-term wealth accumulation. If you want to benefit from a return on shares or use ETFs for retirement provision, protection against price falls is particularly important.

Of course, you can also apply both of the optimisation approaches presented – higher returns in the 30 %, higher security in the 70 %. The potential for improvement in the 70 30 portfolio is therefore huge. Don’t be put off by the fact that the standard version is no longer up to date!

I can give you the following ideas for further optimisation:

• China usually accounts for a large share of emerging market investments. You can make more targeted use of the world’s largest economy for your investments or exclude it completely – depending on how you assess the country’s future prospects.
• There is no limit to the number of funds in your 70 30 portfolio. You could map all the important economic areas, such as the USA, UK, Germany, Europe as a whole, Japan, etc. individually with an index fund. This allows you to categorise your investments very finely.
• Social and environmental standards can also be easily implemented. Almost all major ETFs are now available as ESG versions. Only with small niche products is there not always an ethical investment product.
• The 30 % share in this strategy is intended to generate higher returns at higher risk. Instead of emerging markets, you could also achieve this goal with other products. For example, individual shares or cryptocurrencies are conceivable. You could also invest in P2P loans to generate the necessary profits.

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Up to 20 free shares (until 28.02.2025)

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Median of €79 - €529 of free shares (until 28.02.2025)

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Conclusion: The classic 70 30 portfolio is currently not worthwhile!

A 70 30 portfolio contains 70 % shares from industrialised nations and 30 % emerging markets; this allocation is intended to reflect as much of the global economy as possible. The plan is to use Western nations to bring stability to their own portfolios, while Brazil, China, India and the like are expected to generate higher returns, but also higher risks.

Unfortunately, this calculation does not work out! Emerging market investments have performed disappointingly in recent years. At the same time, volatility in the industrialised nations also rose sharply, meaning that both aspects of the 70 30 portfolio no longer work today.

In the long term, a pure industrialised country investment achieves a better result than the typical 70 30 portfolio! However, there are ways to revitalise the faltering concept in an effective form.

On the one hand, you can replace the 30% share with a more lucrative index fund, while some emerging market ETFs achieve a much better total return through additional selection criteria, which can significantly enhance a 70-30 portfolio.

It is also possible to further diversify the share of industrialised countries and thus provide additional security. Here it makes sense to reduce the number of US shares and invest a larger proportion of the capital in European shares instead.

Of course, you can also use both steps and thus optimise both the return and the risk of a 70 30 portfolio! It is also conceivable that investment products from the emerging markets will generate more profits again in the coming years. In its traditional form, however, the combination of World and Emerging Markets ETFs is no longer worthwhile.

FAQ – Frequently asked questions