Kunal Kapoor, the CEO of Morningstar, discusses worthwhile ETFs for long-term investments in The Craman Countdown.
Many individuals hesitate to invest not because they believe it’s a poor idea, but rather they find the options confusing. There’s this fear of making the wrong choices or, maybe, looking inexperienced if they make a misstep. That leads to what’s often called analysis paralysis; it’s pretty common.
However, there’s no need to worry. You can create a solid portfolio using just a few exchange-traded funds (ETFs). Let’s dive into what such a portfolio might look like and how to allocate your investments.
A straightforward ETF portfolio
To have a portfolio that’s both effective and simple, you should mainly rely on market-tracking index funds. This allows for growth and diversification, essentially safeguarding you against various risks.
Can S&P 500 ETFs suffice for your entire retirement?
One strategy could be to allocate 65% of your portfolio to the Vanguard S&P 500 ETF and 20% to the iShares Core MSCI Total International Stock ETF.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| VOO | Vanguard S&P 500 ETF – USD DIS | 647.30 | -4.24 | -0.65% |
| Ixus | ISHARES TRUST CORE MSCI TOTAL INTL STK | 91.98 | -1.89 | -2.01% |
The Vanguard ETF has a low annual expense ratio of only 0.03% and tracks major U.S. companies, while the iShares ETF, slightly higher at 0.07%, focuses on significant international companies, excluding U.S. stocks. The idea behind including both is to diversify across sectors and regions, which helps reduce the risk of downturns impacting your entire portfolio.
Though these ETFs focus on stocks, a balanced portfolio also needs some bond exposure for a reliable yield during tough economic times. Additionally, it’s wise to have a slice of cryptocurrencies, since they often aren’t covered in typical ETFs.
Goldman Sachs has acquired Innovator Capital, boosting ETF assets to $90 billion
In this vein, you might set aside 10% for the Vanguard Total Bond Market ETF and 5% for the iShares Bitcoin Trust ETF.
To summarize, the Vanguard Total Bond Market ETF (BND) acts as a safety net. With a minimal expense ratio of 0.03%, it encompasses over 17,000 U.S. investment-grade bonds. Its yield over the past year is about 3.9%, and it’s not designed for high growth.
| ticker | safety | last | change | change % |
|---|---|---|---|---|
| BND | Vanguard Total Bond Market ETF – USD | 73.78 | -0.23 | -0.31% |
| ibit | ISHARES Bitcoin Trust – USD ACC | 42.51 | -0.74 | -1.71% |
The Bitcoin Trust, as the name implies, provides exposure to Bitcoin itself. The rationale behind this investment lies in its potential as a limited store of value, possibly shielding your portfolio against inflation. Its expense ratio of 0.25% is slightly higher than others, but many consider the potential returns well worth the cost.
Minimal upkeep needed
This portfolio can thrive for years with little maintenance. Still, there’s one step that could enhance performance.
Vanguard funds surpass China in emerging market investments
Once a year, make it a point to review your funds and compare their current allocations with your initial targets.
If any positions deviate by more than 5% from your target allocation, you might consider selling some high-performing stocks to invest in those lagging behind. This strategy—selling high to buy low—is a key component of maintaining a healthy portfolio. Plus, in tax-advantaged accounts like Roth IRAs and 401(k)s, making these adjustments won’t incur taxes. Lastly, many brokerages offer automation for rebalancing if that’s something you prefer.
Start with what you have, gradually increase your investments where feasible, rebalance annually, and let time work its magic. The longer your money is growing, the brighter your financial future looks.
