How to invest passively
ETFs are a great way to build your wealth passively in my opinion. Also known as exchange-traded funds, ETFs are a great investment tool.
The idea of an ETF is that you can invest in dozens (or hundreds) of businesses or assets in a single investment. I think it’s much easier than buying all those shares yourself. Many of the best ETFs also come with cheap management fees.
But which ETFs are you meant to buy? Some people like the idea of Vanguard Diversified High Growth Index ETF (ASX: VDHG) because of the diversification offered. But I don’t think investing in bonds at this price makes sense and low yield makes sense.
I’d put together an ETF portfolio with these weightings:
BetaShares Australia 200 ETF (ASX: A200) – 30%
If you’re going to invest in ASX shares you may as well go for the cheapest option. BetaShares offers this one for an annual fee of just 0.07% per annum.
You get decent diversification with shares like CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Macquarie Group Ltd (ASX: MQG) and Wesfarmers Ltd (ASX: WES).
One of the more attractive things about this ETF is the income benefits. Not only do ASX shares generally have generous dividend payout ratios, but those dividends also come with franking credits.
This option covers the Australian shares.
iShares S&P Global 100 ETF (ASX: IOO) – 40%
The biggest businesses in the world are steadily accumulating more market power and selling more services to the world.
Shares like Microsoft, Amazon, Apple, Facebook, Alphabet and so on are very compelling businesses today and their known projects like VR and automated cars are also exciting.
What I like most about this ETF is that it’s invested in the biggest global businesses, it doesn’t really matter which country they come from.
This ETF gives us the global blue chip exposure we need.
Betashares FTSE 100 ETF (ASX: F100) – 20%
The global share market doesn’t provide much income and I’m cautious about getting too much exposure to the US share market right now considering what might happen over the next months leading up to the election.
The UK share market could be one of the best ways to get international diversification whilst avoiding US shares.
Within this ETF are plenty of quality shares like Astrazeneca, GlaxoSmithKline, HSBC, Diageo, Unilever, Reckitt Benckiser, Vodafone, National Grid, the London Stock Exchange and so on.
As a bonus, at the end of April 2020, the underlying trailing dividend yield was almost 6%, although it’s obviously a bit lower now.
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE) – 10%
Asia is a very interesting place to invest in shares. It’s home to some of the world’s biggest technology companies like Tencent, Alibaba, Taiwan Semiconductor Manufacturing and Samsung. But this ETF is actually invested in over 1,250 shares. I think that’s excellent diversification.
The Asian middle class have been getting steadily richer over the years and this is giving them more spending power.
As the coronavirus pandemic subsides and/or an effective treatment is produced, the Asian region is likely to get back to the solid growth it was seeing before all of the restrictions.
The ETF has a decent dividend yield and attractive statistics like a return on equity (ROE) ratio of around 14.75%.
All of these ETFs are quality options in my opinion. If I only had $1,000 to get started with today I’d go for the UK ETF because of its solid diversification, but with less exposure to the US than many other index options.
Where to invest $1,000 right now
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of Wesfarmers 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.
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