I think exchange traded funds (ETFs) are one of the easiest ways to add some diversification into your portfolio. Not only do you get 1 share that tracks hundreds (or even thousands) of underlying stocks, most ETFs are also extremely cheap – meaning you don’t have to pay too much for the privilege (unlike many managed funds).
So, if I were to build a $100,000 ETF portfolio looking for maximum diversification and risk management, here’s what I would do.
Vanguard Australian Shares Index ETF (ASX: VAS) – $30,000
A healthy first dose of capital goes to VAS. I think this ETF is one of the best market-wide ASX-tracking funds available – with an ultra-cheap fee of just 0.1%.
With VAS, you are getting exposure to the top 300 companies in Australia with everything from Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA) to Afterpay Touch Group Ltd (ASX: APT).
I think the ASX is a top-notch market due to its relatively high dividend yield (currently 4.06% plus franking) and some patriotic bias on my behalf.
Vanguard U.S. Total Market Shares Index ETF (ASX: VTS) – $20,000
The US is the undisputed heavyweight champion when it comes to quality companies to invest in. In fact, 9 out of the top 10 largest public companies in the world are American, so they must be doing something right.
With VTS, you are getting coverage of over 3,500 US companies, for the rock-bottom fee of 0.03% (making VTS one of the cheapest ETFs available on the ASX). You are getting everything from Apple, Microsoft, Berkshire Hathaway and Amazon to Tesla, Uber, and Exxon Mobil with this fund, making it a great investment to buy-and-hold in my opinion.
Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE) – $30,000
I think an exposure to the emerging markets of the global economy is a great place to be investing right now. I don’t think anyone thinks that countries like China, Taiwan, India and Brazil won’t continue to grow and develop throughout the rest of this century. VGE gives you exposure to all of these and more.
The management fee on this ETF is a little higher at 0.48%, but this is still cheap compared to similar offerings in this space.
ETFS Physical Gold ETF (ASX: GOLD) and Vanguard International Credit Securities Index ETF (ASX: VCF) –$10,000 each
Bonds and gold are two traditional asset classes that investors employ for some downside protection against shares, and so I think both assets have a place in our portfolio. Shares (although lucrative) are highly volatile and so having some hedges in your share portfolio can really help you out in a market crash. Luckily there’s an ETF for that, and both GOLD and VCF offer easy exposure to both the bond market and the yellow metal. IAF charges a fee of 0.3% whilst GOLD will cost you 0.4%.
I think this collection of ETFs will provide a solid, well-diversified portfolio that you can really just set and forget (with the odd rebalancing). Through 5 simple ETF shares, you are getting exposure to thousands of global companies across 3 asset classes – that’s got to be worth some thought!
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Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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.