In any long-term investment portfolio, exchange traded funds that track stocks or other riskier assets will provide investors with a capital growth component, augmenting a portfolio’s overall returns.
For an aggressive ETF portfolio for couples with a 25-year or longer time frame until retirement, Christine Benz, director of personal finance for Morningstar, suggests investors should hold about 60% of a the overall portfolio in riskier, and potentially more lucrative, securities.
This portion provides the “growth engine of the portfolio and also has the longest anticipated holding period,” Benz said. “Therefore, it features heavy equity exposure as well as smaller stakes in volatile, credit-sensitive bond types and commodities. ”
For example, Benz suggests allocating 23.3% to Vanguard Dividend Appreciation ETF (NYSEArca: VIG), 13.3% to Vanguard Total Stock Market ETF (NYSEArca: VTI), 13.3% to Vanguard FTSE All-World ex-US (NYSEArca: VEU), 3.3% to SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), 1.7% to WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) and 5% to PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC).
The Vanguard Dividend Appreciation ETF is the core position and provides investors with a quality tilt to highly profitable, established companies with a history of raising dividend yields. VIG has a 1.85% 12-month yield and a 0.10% expense ratio.
The Vanguard Total Stock Market ETF covers the entire U.S. stock market, providing investors with a broad exposure to all segments of U.S. equities. Additionally, the fund has a low 0.05% expense ratio.
On the flipside, the Vanguard FTSE All-World ex-US ETF allows investors to access the other 55% of the global market capitalization, including exposure to about 46 developed and emerging market stocks. VEU has a 0.15% expense ratio.