I'm a strong believer in utilising exchange-traded funds (ETFs) on the ASX because they can enable Aussies to easily invest in a group of businesses or assets in a single transaction.
Owning 50 individual businesses in a portfolio would probably be seen as diversified, but would owning just one ASX ETF count, too?
There are many different options to consider, such as ETFs that give exposure to Australian shares, global shares, US shares, European shares, Asian shares, or perhaps a specific industry or theme.
Would it be wise to have most or all of my portfolio invested in just one ASX ETF, and how would I choose what to look for?
Risk diversification is important
How the ETF's capital is allocated is important for how suitable an investment it could be.
For example, I wouldn't choose an ASX ETF that only invests in banks because they're all exposed to similar risks.
I'd only want to pick an ETF that offered diversified exposure to various sectors.
The ultimate diversification options could be funds that invest in a wide array of areas.
For example, the Vanguard Diversified High Growth Index ETF (ASX: VDHG) invests in various funds that include ASX shares, emerging market shares, small international shares, large international shares, and some bond exposure.
The BetaShares Diversified All Growth ETF (ASX: DHHF) is similar in that it invests in a mix of ASX shares, emerging markets, US shares, and non-US developed markets.
It's certainly possible that an investment like one of these shares-focused funds could be someone's entire portfolio because of the large amount of diversification.
However, for my own portfolio, I think these funds offer almost too much diversification and can lower potential investment returns. I do like what the DHHF ETF brings to the table, though, as an all-shares pick.
My preferred ASX ETFs
I think the funds that could be the right options, for me, with huge allocations are ones invested in the global share market with diversified holdings. The ASX share market ETFs are good, but the ASX only accounts for around 2% of the global share market, so there are plenty of good companies worth owning outside of Australia.
I'd want to choose funds that own a large number of shares but also that the typical business within those funds is good quality to help deliver long-term profit growth and returns.
I'm thinking of ideas such as Vanguard MSCI Index International Shares ETF (ASX: VGS), VanEck MSCI International Quality ETF (ASX: QUAL), Betashares Global Quality Leaders ETF (ASX: QLTY), BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and possibly iShares S&P 500 ETF (ASX: IVV). I'd be willing to have most of my portfolio invested in one of these funds, but that approach may not be right for everyone.
Of course, it's probably a good idea to have investments in more than just one fund. That's why my portfolio also has ASX growth shares and ASX dividend shares. But, I'd be very happy to regularly buy one of the ETFs I've mentioned, which I plan to do with the QUAL ETF.
