Many Australian investors like to keep things simple in their investing portfolios by just owning a handful of ASX exchange-traded funds (ETFs).
As I've written about before, this approach makes sense for many investors. By using just two or three index funds, you can build a diversified portfolio of passive investments that you can leave in the proverbial bottom drawer without too much worry or effort.
I've long advocated owning more than one exchange-traded fund in this endeavour. After all, just buying an Australian index fund, for example, leaves out some of the world's best companies and exposes one to any potential problems with the Australian economy or the Australian dollar.
By supplementing an ASX index fund with something like the Vanguard MSCI Index International Shares ETF (ASX: VGS) and the iShares MSCI EAFE ETF (ASX: IVE), you can mitigate these risks while broadening your portfolio's horizons significantly. You'll also get exposure to some of the world's best companies, which, sadly, lie outside the ASX. I'm talking about the likes of Apple, Microsoft, Coca-Cola, and Amazon.
But perhaps ASX investors who value simplicity can get by with just one ETF after all.
They can do so by buying something like the Vanguard Diversified Growth Index ETF (ASX: VDGR).
An all-in-one ASX ETF?
This ETF gets around our diversification problem by actually investing in multiple underlying ETFs within its portfolio. It's a 'buy one, get several free' arrangement.
Yes, this Vanguard ETF holds several underlying stakes in other Vanguard ETFs within it. These cover Australian shares, international shares from advanced economies (both currency hedged and unhedged), shares from emerging markets, small-cap shares, and government and corporate bonds.
By following this approach, VDGR offers inherent diversification and portfolio balance up front, with the only step required from the investor being to actually buy the units.
The Vanguard Diversified Growth Index ETF is just one of the funds in Vanguard's offering, though. Investors who might prefer a more conservative approach, with more bonds and cash and fewer shares, might want to check out the Vanguard Diversified Conservative Index ETF (ASX: VDCO).
In contrast, younger investors with a higher risk appetite might prefer the Vanguard Diversified High Growth Index ETF (ASX: VDHG). This fund has far less exposure to bonds and cash and opts instead for a larger allocation to shares.
For passive investors, one of these funds might be the only investment you need to buy.
