Does an exchange traded fund (ETF) portfolio that holds Vanguard FTSE All-World ex-U.S. ETF (VEU) and iShares Russell 3000 Index (IWV) provide a complete and balanced financial diet?

It’s highly unlikely an investor can cover all the bases with just these two funds. Although these funds have had widely different performances, they’re more alike than most investors might think, as Roger Nusbaum for Random Roger’s Big Picture points out:

  • They both have high correlations to the S&P 500. VEU has a 0.876 correlation, and IWV has a 0.975 correlation.
  • They have a high correlation to each other and the iShares MSCI EAFE Index (EFA). All of the diversification benefits of the component countries in VEU get blended away in such a broad-based product. Also, the yields of IWV are similar to EFA.

So although these might be a good start for a diversified, lazy portfolio, it might be worth considering some other broad-based ETFs or regionally-focused ETFs.

For full disclosure, some of Tom Lydon’s clients own VEU.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.