I have nothing against Aussie companies and the ASX. Australian shares have made many investors very wealthy and funded the retirement of millions of Australians.
But the reality is today, the ASX is dominated by our big banks and our big miners – which together make up 6 out of the top 10 ASX companies by size.
If there is an issue with property values or the price of iron ore, it's not going to be a pretty picture for anyone who owns an S&P/ASX 200 (INDEXASX: XJO) index fund.
That's why I like to look overseas to the US for some important diversification in my own investments. The US indices are a lot more diversified compared to the ASX, with companies like Apple, Microsoft, Proctor & Gamble and Berkshire Hathaway in the top 10 American companies.
If you wish to buy individual shares in these kinds of companies directly, it's often an expensive and tricky process, with tax forms, foreign exchange rates and higher brokerages to think about.
Is there an easy solution?
Luckily there's a far cheaper and easier way to hop across the Pacific – through ETFs. ETFs (or exchange traded funds) are really funds that hold a basket of stocks for the benefit of the fund's owners. Whenever you buy an ETF unit (share), you're buying all of the companies that the ETF holds.
Two of my favourite US-focused ETFs are the Vanguard U.S. Total Market Shares Index ETF (ASX: VTS) and the iShares S&P 500 ETF (ASX: IVV). IVV follows the S&P 500 index, which is similar to our own ASX 200, but track the 500 largest American companies. So you are getting all of the stocks mentioned above, as well as everything from Boeing and eBay to Ford Motor Company and PayPal.
IVV charges a management fee of just 0.04% – meaning it will cost you just $4 a year for every $10,000 invested.
VTS is a similar ETF, but instead of the top 500 US companies, you are getting the US stock market in its entirety – all 3,611 stocks (at the current time). VTS is even cheaper, offering its services for just 0.03% per annum.
Foolish takeaway
With one simple share, VTS and IVV both offer investors an easy way to diversify a portfolio using all some of the best companies in the world. If you're looking for a world beyond our ASX banks and miners, wither of thee two ETFs would be a great place to start in my view.
