If you're an investor who craves simplicity and low cost above all else, Vanguard has you covered. Long known as the industry's low-cost leader, its lineup of cheap, broadly diversified ETFs make for ideal core portfolio building blocks.
Vanguard does it so well, in fact, that you can own virtually the entire global stock and bond markets with just two ETFs.
Let's set aside the idea of how much of your portfolio should be in tech, artificial intelligence (AI), or the Magnificent Seven stocks for a minute. Instead, let's focus on constructing the ultimate "set-it-and-forget-it" portfolio. With these two Vanguard ETFs, your portfolio couldn't get much simpler.
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1. Vanguard Total World Stock ETF
The Vanguard Total World Stock ETF (VT 1.52%) is essentially the entire U.S. and international equity markets in a single fund. Owning more than 10,000 stocks in total, it offers a mix of roughly 65% United States, 25% developed markets, and 10% emerging markets stocks. With an expense ratio of just 0.06%, it's one of the cheapest ways to own the entire world.
NYSEMKT: VT
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2. Vanguard Total World Bond ETF
The Vanguard Total World Bond ETF (BNDW 0.26%) is a simple 50/50 combination of the Vanguard Total Bond Market ETF and the Vanguard Total International Bond Market ETF. In total, it owns positions in more than 18,000 bonds and charges an expense ratio of just 0.05%.
NASDAQ: BNDW
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What this two-ETF portfolio looks like
If you want to use the old-fashioned 60/40 portfolio as your benchmark, this two-ETF combination would look roughly like this.
- 39% U.S. stocks
- 21% international stocks
- 20% U.S. bonds
- 20% international bonds
That's not a bad combination for conservative investors, but your mileage may vary. Given returns over the past several years, many investors would probably prefer to keep their bond allocations to a minimum. Or they'd want to swap out some fixed-income exposure for something else like gold or Bitcoin.
Alternatively, a 90/10 allocation would instead look like this.
- 59% U.S. stocks
- 31% international stocks
- 5% U.S. bonds
- 5% international bonds
Today's risk-seeking investors might find the 90/10 allocation a little more appealing. It keeps equity exposure and overweights currently hot international stocks as part of a long-term mix. Plus, you can get this with just two ultra-cheap Vanguard ETFs, making it incredibly easy and straightforward.
If one of these allocations isn't to your liking, it's easy to turn this two-ETF portfolio into a four-ETF portfolio. Swap out the Vanguard Total World Stock ETF for the Vanguard Total Stock Market ETF and the Vanguard Total International Stock ETF. And then replace the Vanguard Total World Bond ETF for its two component ETFs mentioned earlier.
Using those four ETFs allows you to more directly control your stock/bond and U.S./international allocations.
