iShares ETF: Top Choices for Your Portfolio

Chances are that you have seen an iShares ETF among the many choices in your retirement plan. BlackRock, which owns the iShares brand, manages about $925 billlion of ETF assets, making it by far the largest sponsor of exchange-traded funds and index funds for stocks and bonds alike. 

Here's how you could build a diversified portfolio of stocks and bonds with just seven iShares ETFs.

Build some diversification into your portfolio with etfs. Image source: Getty Images.

iShares ETF choices for domestic stocks

Some of iShares most competitive funds are those that track domestic U.S. stocks. Investors can assemble a mix of small, mid-, and large-cap stocks with just three iShares ETFs that track common market-cap based indexes.

Data source: iShares.

These three funds span virtually all of the stocks listed on the market, from the very largest of large-cap stocks (S&P 500) to the very smallest (Russell 2000).

The iShares Core S&P 500 ETF (IVV -0.23%) simply seeks to track the performance of the S&P 500 index. Companies included in the S&P 500 account for a disproportionate share of total U.S. stock market value, collectively making up about 81% of the total value of U.S. stocks in 2016. What you see is what you get -- this fund hopes to simply provide a return equal to the S&P 500 index minus fees. Penny-pinching investors might consider Vanguard 500 Index ETF (VOO -0.23%) as a less-expensive alternative, as it carries an annual expense ratio of just 0.05% of assets, but the difference is relatively marginal.

iShares Core S&P Mid-Cap ETF (IJH -0.14%) is one of the very best, carrying the lowest expense ratio of any fund that tracks the S&P 400 Mid-Cap Index. The 400 companies that make up the portfolio had a market capitalization of $1.4 to $5.9 billion, and account for roughly 7.6% of the entire U.S. stock market value, making this fund a great way to get very focused exposure to medium-sized companies listed on American markets.

iShares Russell 2000 ETF (IWM -0.08%) tracks the Russell 2000 index of small-cap stocks, which is made up of the 2,000 smallest stocks of the Russell 3000 index. Companies in the Russell 2000 make up about 8% of the total value of U.S. stocks, and many regard the index as the U.S. small-cap index. Though the fund isn't a leader on fees -- Vanguard Russell 2000 Index Fund ETF Shares charges 0.15% per year -- the iShares fund has been the better-performing of the two. An interesting quirk in the world of small caps has led to ETFs that have outperformed the indexes they are supposed to underperform after fees and expenses are included. 

iShares ETF choices for foreign stock

Investing in foreign stocks with iShares ETFs is as easy as looking to two of the fund company's largest ETFs.

Data source: iShares.

The iShares Core MSCI EAFE ETF (IEFA -0.25%) tracks the MSCI EAFE IMI, which includes small, medium, and large stocks in 21 different countries in Europe, Australia, and Asia, purposefully excluding stocks listed in North America (you won't find U.S. or Canadian-listed companies in this fund). Companies listed in Japan, the U.K., and France made up the largest share of assets at the time of writing, accounting for approximately 52% of assets. This fund is one of the least-expensive developed market funds that holds companies of all sizes, from small caps to large caps.

Where the iShares Core MSCI EAFE ETF avoids emerging markets, the iShares MSCI Emerging Markets ETF (IEMG 0.50%) invests only in emerging market stocks. This fund invests in companies of all sizes in 23 different emerging markets around the globe, with China-, Korea-, and Taiwan-listed companies making up more than half the fund's assets at the time of writing. Consider it something like a total stock market index for emerging market stocks, given that the fund seeks to invest in 99% of emerging market stocks by market cap. Its diversification is best exemplified by the fact it currently holds more than 1900 individual investments.

iShares ETF choices for bonds

Any diversified portfolio should hold stocks and bonds. iShares has some particularly attractive options in the world of bonds, with one fund that's heavy on U.S. government bonds and a top corporate bond ETF that takes a little more risk for higher returns. 

Data source: iShares.

Think of the iShares Core U.S. Aggregate Bond ETF (AGG -0.28%) as a catch-all fund for bond investors who want one simple fund to rule them all. Though the fund has a bias toward low-yielding government bonds (about 65% of assets are held in U.S. Treasury and government-backed mortgage-backed securities), its average holding yields about 1.9% due to the fact the average bond has more than seven years to maturity.

Investors who want a little higher returns might prefer the iShares iBoxx $Investment Grade Corporate Bond ETF (LQD -0.20%), which avoids government securities altogether. But don't get the idea that it takes undue risk for higher returns: This fund invests only in investment-grade rated bonds, holding about 55% of its assets in bonds rated A or better. A little incremental risk results in higher yields, as its underlying bonds have an average yield of 2.97% at the time of writing. 

A one-stop shop

You could theoretically create a very diversified portfolio with iShares ETFs. Its domestic stock ETFs allow you to allocate your investments to small-, medium-, and large-cap stocks, and its foreign ETFs offer broad diversification across stocks in developed and emerging markets. Its bond ETFs allow you to take a little risk off the table by buying a broad basket of U.S. government and high-rated corporate grade bonds in the United States.

All in all, with just seven ETFs listed in this article, you could have a very diversified portfolio of thousands of different stocks and bonds, and pay less than 0.20% of assets in fund fees and expenses each year. You'd be hard pressed to do much better than that.