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The Cheapskate's Portfolio

In this brave new world of subpar growth and recession seemingly lurking around every corner, investors have had to adjust many of their long-held beliefs. There's been a renewed effort to pay down debt, save money, and cut back on unnecessary items of daily living. And while this newfound frugalness may only last as long as the unemployment rate remains elevated, people everywhere are scrutinizing each dollar they spend with a more careful eye. Given current trends in the marketplace, that's an attitude that has carried over into how folks view their investments.

Discount investments
There are many, many ways to build a diversified investment portfolio. Investors who want the utmost in control over their money and enjoy spending a lot of time on research will probably end up picking individual stocks. Those people who don't want to devote their time to stock research and who would rather rely on the prowess of investment professionals will find actively managed mutual funds a natural fit. Still others may want the one-stop shopping aspect of funds, but don't want to pay the fees that most actively managed funds charge. In this case, index funds or exchange-traded funds are probably the best bet.

For investors who want to quickly assemble a diversified portfolio for next to nothing, ETFs are the clear winner. Given the incredible growth in this segment of the market in recent years, there are now hundreds and hundreds of ETFs that invest across all corners of the globe. And while you can probably safely ignore most of the newer entrants to the field that focus on increasingly narrow areas of the market, there is no shortage of solid, inexpensive, broad-minded funds that can serve as the backbone of your bargain-priced portfolio. So without further ado, I give you the Cheapskate Portfolio, an all-ETF portfolio made up of some of the cheapest funds around that have been in existence for at least one year and have at least $50 million in net assets.

The Cheapskate Portfolio

Asset Class


Expense Ratio

Large-Cap Vanguard S&P 500 ETF (NYSE: VOO  ) 0.06%
Mid-Cap Vanguard Mid-Cap ETF (NYSE: VO  ) 0.12%
Small-Cap Schwab U.S. Small-Cap ETF (SCHA) 0.13%
Foreign Developed Schwab International Equity ETF (NYSE: SCHF  ) 0.13%
Foreign Emerging Vanguard MSCI Emerging Markets ETF (NYSE: VWO  ) 0.22%
Fixed Income Vanguard Total Bond Market ETF (BND) 0.11%

Source for expense ratios: Morningstar.

All in the mix
Of course, your allocation to each of these funds will vary depending on your age, risk tolerance, and time to retirement. If you're relatively young, you'll probably want to target roughly 65% of your assets in domestic stocks, 25% in foreign stocks, and 10% in bonds. In this case, you might want to think about adding another ETF or two to the mix, such as Vanguard FTSE All-World ex-U.S. Small-Cap ETF (VSS) for foreign small-cap coverage or iShares/Citi International Treasury Bond ETF (IGOV) for foreign bond exposure. These two funds will run you 0.33% and 0.35%, respectively.

If you've already left your working years behind and are enjoying your retirement, your allocations should be much more conservative. Here, you should aim for something closer to 35% domestic stocks, 10% foreign stocks, and 55% bonds. If you're retired, you should also have a decent allocation to inflation-protected bonds, to protect your purchasing power from the ravages of inflation. Folks in retirement might want to target roughly 20% of their portfolio in inflation-protected securities. To get this exposure at a rock-bottom price, consider Schwab U.S. TIPS ETF (NYSE: SCHP  ) , which will only set you back 0.14% a year. Or, if you want to add a dividend component to your fund lineup, one of the least pricey choices is Vanguard Dividend Appreciation ETF (NYSE: VIG  ) , with its 0.18% expense ratio.

A step further
Of course, you may want to break your portfolio down even further among growth and value funds. If you want a value tilt to your portfolio or if you think growth stocks are set to rebound, adding some style-based ETFs to your mix might be a good idea. Here, you may want to consider the Vanguard Value ETF (VTV) or the Vanguard Growth ETF (NYSE: VUG  ) , both of which come with a low 0.12% price tag. If you want to make this split on the small-cap side, the Vanguard Small-Cap Growth ETF (VBK), at 0.12%, or the Vanguard Small-Cap Value ETF (VBR), at 0.23%, are some of your cheapest options.

In the end, it is possible to assemble a fully diversified portfolio for practically pennies if you choose the right low-cost exchange-traded funds. While the options I've presented here are either the cheapest, or one of the cheapest, options in their respective asset classes, there are still many more inexpensive ETFs that can get the job done. Just remember to focus on broad-market funds rather than narrow, sector-based ones. This way you can rest assured you'll be getting the best of what the market has to offer at the lowest possible price.

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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