ETF, ETF Portfolio

Building the right ETF portfolio can be an extremely effective way to achieve a succinct, diversified quality passive investment strategy.

With a large range of cheap, quality ETF products, building a great investment strategy can be achieved in as little as 1-3 holdings. Let’s explore my Four favorite options and what they provide.

Option One: The All-In-One

Holdings; 100% VDHG

This method is probably the simplest and one that a lot of many passive investors utilize. This method has been made popular in many FIRE communities. It involves investing solely in the Vanguard Diversified High Growth (VDHG) ETF. The beauty of this product is that it combines many of their popular ETF products to create a highly diversified fund across many markets and equities.

This strategy is a mixture of passive and active investing. It utilizes a number of its index funds but invests varying proportions into them in-line with an active strategy. It targets a 10% allocation to income asset classes and a 90% allocation to growth assets.

The Good

  • Simple, Easy strategy
  • Broad international equity allocation
  • Massive asset diversification

The Bad

  • Higher management fees than alternatives
  • Relatively new fund (2017), with no 5 and 10-year performance
  • Not a completely passive investment philosophy
  • Contains defensive assets
Ticker CodeVDHG
Assets Under Management$296M
Management Fee0.27%
Inception Date2017
1 Year23.84%
5 Years
10 Years
VDHG Fundamentals

Here’s a breakdown of the important bits:

ETF Australia, Vanguard, VDHG, ETF
VDHG Holdings

Option Two: Australia and The World

Holdings;

40% VAS (or equivalent)

60% VGS

With this method, we focus purely on equities and are targeting a very broad exposure. In this strategy we would acquire a proportion of a low-cost Australian exposure ETF, a good example would be VAS or A200. Both of these are very low cost, and either would be suitable.

We then acquire a larger proportion of VGS. VGS is an index fund for the world-ex Australia. Hence our reasoning for combing it with VAS/A200. VGS is a very low-cost fund and is domiciled in Australia. It has a history of decent returns and has proven to be a quality product for many investors.

The Good

  • Broad exposure to many of the world’s financial markets
  • Reasonable price
  • Australian Domiciled
  • Well established ETFs
  • DRIP available

The bad

  • Higher management fee than solely VAS or a VAS IVV method
  • Manually rebalancing may be required
  • unproportionate exposure to some economies (i.e. China, India)

Here’s a breakdown of the important bits:

Ticker CodeVASVGS
Assets Under Management$4.6B$2.2B
Management Fee0.10%0.18%
Inception Date20092014
1 Year23.62%28.37%
5 Years8.93%12.50%
10 Years7.61%13.49%
VAS VDS Fundamentals
ETF Australian, Vanguard, VAS, VGS, Stock market
VAS VGS Holdings

Option Three: All in On Australia

Holdings;

100% VAS (or equivalent)

Many investors will choose to invest focused solely on Australia. This may be due to a home bias or a dividend income-focused approach. For this method, a low-cost ETF would be most suitable, an example of which is either VAS or A200.

The Good

  • Easy and user friendly
  • Full use of highly franked distributions
  • No currency risks
  • Australian Domiciled
  • Reasonable expense
  • DRIP opportunities

The Bad

  • Complete home bias, no overseas diversification
  • No exposure to markets with historically greater returns

Here’s a breakdown of the important bits:

Ticker CodeVAS
Assets Under Management$4.6B
Management Fee0.10%
Inception Date2009
1 Year23.62%
5 Years8.93%
10 Years7.61%
VAS Fundamentals

Option Four: Australia and The US

Holdings;

50% VAS (or equivalent)

50% IVV

Both the Australian and US markets have performed extremely well in the past. This method focuses on these markets. For this strategy again a low-cost ASX 200/300 fund is recommended such as VAS or A200.

For US exposure I would recommend iShares S&P 500 index IVV. This ETF is almost as low cost as Vanguards US total market ETF, but iShares recently changed domicile to Australia making it more accessible and simplified from a taxation perspective. This index captures the top 500 US companies which comprise many of the big tech names we know. 

The Good

  • Offering highly franked distributions
  • Australian Domiciled
  • Reasonable/Low expenses
  • Exposure to US markets with excellent previous returns
  • Diversification outside of Australia
  • Both ETFs are well established

The Bad

  • No direct exposure to other markets and developing markets
  • DRIP not a feasible option for IVV at current share price and yield
  • Some rebalancing may be required
  • No exposure to microcap companies

Here’s a breakdown of the important bits:

Ticker CodeVASIVV
Assets Under Management$4.6B$3.4B
Management Fee0.10%0.04%
Inception Date20092000
1 Year23.62%30.97%
5 Years8.93%14.96%
10 Years7.61%16.25%
VAS IVV Fundamentals

For more help finding quality ETFs, be sure to checkout out ETF checklist that we personally use to find great ETFs. And for help with all things investing check out our eBook here.

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