Diversified ETF Portfolio Examples You Can Create
Investors can easily create a diversified ETF portfolio without spending hours researching the best stocks to buy.
Investing in ETFs is an excellent way to gain instant diversification in a basket of companies.
While one ETF provides a solid amount of diversification, you can invest in multiple funds to maximize your portfolio diversity and asset exposure.
The Benefits of Diversification
Even the most advanced financial analysts in the world make mistakes. Therefore, diversification is a fantastic way to reduce your exposure to any single company.
Reduce risk
If you invest your entire portfolio into one company that performs poorly, you can lose a lot of your investment capital.
Gain exposure to multiple companies
However, if you invest a portion of your portfolio into a basket of companies, it won’t affect your overall portfolio as much if one of them performs poorly.
Invest in a specific sector or industry
Additionally, even if you are only interested in investing in one stock market sector, sector ETFs exist that can give you exposure to a basket of companies in your chosen industry.
Diversified ETF Portfolio: Examples of ETFs to Use
To create a diversified ETF portfolio, you must know which ETFs suit your investment goals.
Various ETFs are available that invest in international companies, real estate, domestic companies, and more.
If you understand how these ETFs work, you can create a diversified ETF portfolio that aligns with your investment goals without consulting a financial advisor.
Domestic Exposure (such as $VOO)
One of the most popular investments is broad index funds that invest in domestic companies.
The S&P 500 is the most tracked index fund and provides exposure to the top 500 companies on the U.S stock market.
The Vanguard S&P 500 funds ticker symbol is VOO and offers the lowest expense ratio out of all the S&P 500 funds.
International Exposure (such as $VXUS)
Even though the American economy is the world's powerhouse, this can change anytime.
Therefore, some investors may want to diversify into international companies that generate profits outside of the United States.
The Vanguard Total International Stock ETFs ticker is VXUS and is an excellent way to gain diversification outside of American companies.
Real Estate Exposure (such as REITs like $O)
The stock market allows investors to gain exposure to physical assets like real estate without all the hassle of owning properties.
Real estate investment trusts (REITs) like the Realty Income Corp (ticker symbol: O) pay monthly dividends allowing you to make passive income without directly owning any property.
Additionally, you can invest in REIT ETFs like the Vanguard Real Estate ETF (ticker symbol: VNQ) to gain exposure to multiple REITs.
Small Company Exposure (such as $VB)
The main stock indexes, like the S&P 500, primarily invest in large, well-established companies. However, smaller companies are also a great way to diversify your portfolio. And generally offer higher growth potential.
Small-cap stocks are generally less established companies, meaning they are riskier but provide a higher return potential.
The Vanguard small-cap fund trades under the ticker VB and is an excellent way to gain diversified exposure to small companies with high return potential.
Emerging Market Exposure (such as $VWO)
An emerging market refers to a nation that is not considered a developed economy yet but is transitioning into one.
Since emerging market economies are not fully developed, there is plenty of room for massive growth potential.
Think about having the opportunity to invest in the United States before it became the global power it is today…
Vanguard has an emerging markets fund that trades under the ticker VWO.
VWO provides investors with exposure to a basket of companies in emerging market economies with a reasonable expense ratio of just 0.08%.
A Little Bit of Everything (such as $VT)
If you want to create a diversified portfolio that invests in the entire world, the Vanguard total world ETF trades under the ticker VT.
This ETF invests in companies worldwide but still allocates over 60% of its holdings to U.S companies.
However, if you combine this ETF with other funds, you can easily create a portfolio with a basket of companies in all types of economies.
Diversified ETF Portfolio Examples
Now that you know of many ETFs, you can combine them to create the ultimate diversified portfolio.
For example, if you have $100,000, you can invest evenly into four different ETFs.
If you invest 25% of your portfolio into four different ETFs, you will allocate $25,000 to each fund.
Portfolio Example #1
VOO (domestic companies) - 25%
VNQ (real estate) - 25%
VXUS (international companies) - 25%
VB (small-cap companies) - 25%
Portfolio Example #2
VT (everything) - 50%
VOO (domestic companies) - 50%
Portfolio Example #3
VOO (domestic companies) - 10%
VT (everything) - 10%
VNQ (real estate) - 10%
VWO (emerging markets) - 10%
VB (small-cap companies) - 10%
VXUS (international companies) - 10%
QQQ (concentrated domestic) - 10%
DIA (domestic value) - 10%
VIG (domestic dividend growth) - 10%
VYM (domestic high dividend yield) - 10%
Creating a Diversified ETF Portfolio: Bottom Line
Thanks to ETFs, there are tons of portfolios you can easily create with plenty of diversity.
However, diverse portfolios come with drawbacks as well. For example, if you concentrate your portfolio in fewer companies, you have a chance to outperform the overall markets.
Investing in fewer companies has a much higher chance of providing negative returns, so your choice should depend on your investment goals.
Diversification is not a good choice if you want a high-risk, high-reward portfolio.
If you are looking for a low-stress passive long-term income source, consider creating a diversified ETF portfolio.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #066
