With over 1,400 exchange traded funds on the U.S. markets, picking the right one may be daunting. While you can get fancy with an investment portfolio, investors can still keep things simple as well.
Anna Prior for the Wall Street Journal points out that investors can take a back-to-basics approach and construct a very well-diversified portfolio with just three low-cost ETFs. [The Total Cost of Owning an ETF]
“In this atmosphere, where it’s so easy to get drawn into complicated and niche areas of the market, this is a good way to be disciplined,” Abby Woodham, a fund analyst at investment researcher Morningstar, said in the article.
When it comes to the basics, most financial advisors suggest diversified exposure in equities and fixed-income assets that encompass the global markets. [iShares: Want Lower Risk? Try to Diversify]
For instance, investors can hold cheap index-based ETFs such as the Vanguard Total Stock Market Index ETF (NYSEArca: VTI), which has a 0.05% expense ratio; Vanguard Total International Stock ETF (NYSEArca: VXUS), which has a 0.16% expense ratio; and Vanguard Total Bond Market ETF (NYSEArca: BND), which has a 0.10% expense ratio.. Overall, these three ETFs provide exposure to over 15,000 stock and bond components. [Why Retirees Are Turning to ETFs for $1 Million Goal]
“We would agree that this three-fund approach offers most investors a prudent, well-balanced, diversified portfolio at a low cost,” Vanguard spokesman John Woerth said in the article.
Similarly, investors can utilize other low-cost fund families, such as BlackRock’s iShares suite, including iShares Core S&P Total U.S. Stock Market (NYSEArca: ITOT), which has a 0.07% expense ratio; iShares Core MSCI Total International Stock (NYSEArca: IXUS), which has a 0.16% expense ratio; and iShares Core Total U.S. Bond Market (NYSEArca: AGG), which has a 0.08% expense ratio. Overall, the three ETFs hold a little over 6,700 securities.