A Simple Low Cost Diversified ETF Portfolio
Diversified indexing seems to be all the rage these days. To be honest, I’ve only recently started seeing the real benefits of indexing. As you may know, I am an aggressive investor and a performance chaser. However, even as an aggressive performance chaser, there is always room in the portfolio for some passive investing that goes with the flow that comes with the benefit of reduced risk.
After doing some research, if I were to put together a diversified couch potato’ish passive index ETF portfolio, I would choose ETF’s with broad index coverage along with the lowest MER’s possible.
Here is what I came up with which happens to be very similar to the Canadian Capitalist sleepy portfolio:
The Diversified Low Cost ETF Portfolio
|Canadian Large Cap Index||XIC (CAD)||0.05%|
|Total U.S Market||VTI (USD)||0.05%|
|70% Europe, 30% Pacific||VEA (USD)||0.09%|
|94.3% Emerging Markets, 5.3% Pacific, 0.20% North America||VWO (USD)||0.15%|
|Canadian Short Term Bond Index||VSB (CAD)||0.15%|
Update Sept 2013: For your international exposure, consider VXUS which also has some small cap coverage. I like VXUS because has broad exposure and has a low MER (0.14%), however, the drawback is that it includes some Canadian coverage (duplication).
There are lots of ways to tweak the portfolio. I chose XIC over XIU because of the lower MER which is the same reason why I chose a combination of VEA and VWO instead of using VEU or XIN.
VTI, the total U.S market, is a steal in my opinion as it covers the whole U.S market without having to purchase separate funds for the Russell 2000, S&P 500, DJIA, and Nasdaq. If you’re looking for a higher potential return and willing to take on a bit more risk, you may want to purchase a U.S small cap ETF separately.
VSB, a Canadian short term bond index, was chosen because short term bonds are known to have lower correlation with the equity markets than long term bonds. Having a bond portion in the portfolio will reduce volatility while only slightly reducing potential returns. The bond portion will start out small (maybe non existent) in the early years, but increase in percentage as the portfolio gets closer to funding retirement.
How does the portfolio look to you? What would be your picks for a diversified low cost ETF portfolio?