2 Easy Ways to Build a Balanced ETF Portfolio: Vanguard MSCI Emerging Markets ETF (VWO), Vanguard Total Bond Market ETF (BND)

Page 1 of 2

Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO)The exchange-traded fund industry has exploded over the past couple of decades. But when investors comb through the vast number of fund choices, they often find it a bit confusing. Let’s quickly break down the ETF industry. Then we’ll look at two simple methods for constructing a well-diversified ETF portfolio.

ETF primer
Exchange-traded funds are investments that attempt to mirror the return of a particular index, like the S&P 500, Russell 3000, or the MSCI World Index. That is an ETF fund manager’s sole objective — no more, no less. Therefore, buying and selling decisions are based purely on the contents of the underlying index, rather than research.

Although actively managed ETFs are gaining popularity, most ETFs are passively managed. Because passive ETF managers make no active decisions, this results in less trading, increased tax efficiency, and reduced fund expenses. And as more and more dollars funnel into the ETF market, economies of scale kick in, which makes these funds even cheaper for us to own.

But, as rapidly as the 20-year old, $1.3 trillion ETF market has grown, only 3% of U.S. households own an ETF. ETFs will likely gain further popularity due to their hands-off approach, which allows you to spend more time traveling, gardening, or whatever you like. If you’re a hands-on investor, you may favor ETFs because they allow you more time to research individual stocks.

Building an ETF portfolio
You can construct a well-diversified ETF portfolio in a couple of ways, with the real differentiator being the level of ease or sophistication you want.

You can get an incredibly simple portfolio that’s balanced and diversified with just two ETFs: a total world stock market ETF and a total bond market ETF. For example, Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO) possesses global stock-market exposure, and Vanguard Total Bond Market ETF (NYSEARCA:BND) adds plain-vanilla bond exposure to your portfolio. So if you’re an investor who wants moderate risk, you can simply invest 60% in the stock ETF and 40% in the bond ETF.

Some benefits of this type of portfolio are its simplicity and ease of knowing when to rebalance. And because ETFs typically cost you a commission every time you place a buy or sell trade, a two-ETF portfolio helps to keep costs super low. But one disadvantage of this portfolio is that it’s not very fine-tuned. For example, if you prefer to have a larger allocation of international stocks than domestic stocks, you may want two separate stock ETFs.

A more sophisticated approach to an all-ETF portfolio would consist of more stock and bond ETFs. For stocks, you could have a large-cap domestic ETF, mid- and small-cap domestic ETFs, an international developed-market ETF, and an emerging-market ETF. For large-cap domestic exposure, consider Vanguard Large-Cap ETF (NYSEARCA:VV), and for your mid- and small-cap domestic ETF, think about iShares Core S&P MidCap 400 and iShares Core S&P Small-Cap ETF. For your international developed-market and emerging-market exposure, consider iShares MSCI World ETF and Vanguard MSCI Emerging Markets ETF  (NYSEARCA:VWO), respectively.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!