Exchange trade funds (ETFs) are a fantastic and easy way to invest in hundreds (or even thousands) of companies across any country or industry you like, with only one share. ETFs have been one of the biggest investing trends over the past decade, with new and existing investors flocking to the low-fee, hands off approach.
So here’s how I would build a highly diversified $100,000 ASX portfolio using only ETFs.
Vanguard Australian Shares Index ETF (ASX: VAS) – $40,000
Starting with our own ASX, this ETF holds a stake in the biggest 300 companies on the market – from Commonwealth Bank of Australia (ASX: CBA), Coles Group Ltd (ASX: COL) all the way down to Baby Bunting Group Ltd (ASX: BBN). Your essentially getting the whole Aussie market with this ETF, complete with a healthy 4.03% dividend and even some franking credits too.
Vanguard MSCI Index International Shares ETF (ASX: VGS) – $20,000
This ETF basically invests in all of the developed markets around the world, excluding Australia. This means you are getting great US companies like Apple, Amazon and Facebook, as well as Japan’s Honda, Switzerland’s Nestle and the UK’s British Petroleum (plus more than 1,500 others). There’s no doubt that most of the world’s best companies lie outside Australia, so why not get a slice of them all in this ETF. VGS isn’t hedged to Australian dollars though, meaning it will be subject to currency fluctuations.
iShares MSCI Emerging Markets ETF (ASX: IEM) – $20,000
This ETF covers the emerging markets that VGS doesn’t – markets like China, Brazil, Russia, India, South Korea and Taiwan, amongst others. I think emerging markets are going to drive global growth for much of this century, so having some exposure is a great idea for any portfolio. Although these markets can be a little volatile, they’re also not as correlated with our own, providing some much-needed balance. Some of IEM’s top holdings include Alibaba, Tencent and Samsung.
iShares Global Consumer Staples ETF (ASX: IXI) – $20,000
This ETF is a little different, tracking only global companies that produce ‘consumer staples’ – things like food, drinks, razors and laundry powder. These companies are usually regarded as being the most ‘recession-proof’, so it might be nice defensive ETF to hold. Some of IXI’s top companies include Proctor & Gamble, Clorox and Philip Morris International.
I think this combination of ETFs would set one up for a diversified and outward-looking portfolio that would do well in most market conditions. With such broad global exposure, you’ll never have to worry about one particular company, one particular sector or even one particular country (except perhaps Australia or the US!) getting into trouble.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia owns shares of iShares Global Consumer Staples ETF. The Motley Fool Australia has recommended Facebook and Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.