The price war among discount brokerage companies has raged for nearly a year. If you haven't taken advantage of it yet, now is the perfect time. You can easily assemble a portfolio of commission-free ETFs that will give your investments the full range of profit-making possibilities.
The best mix yet
For months, Schwab, Fidelity, and Vanguard kept one-upping each other with ETF deals. Schwab started with a modest offering of commission-free proprietary ETFs. Fidelity answered with 25 ETFs from the popular iShares line. And Vanguard offered up its whole line of ETFs at no commissions.
But the announcement from TD AMERITRADE earlier this month trumped all three of its competitors, at least for the moment. By offering more than a hundred ETFs from several different ETF providers, TD AMERITRADE has made it easy to customize an ETF portfolio that works for any investor's individual needs.
To show just how versatile these ETFs are, here are three different ETF portfolios designed to cover investors in a variety of different financial situations.
ETF Portfolio #1: Just getting started
Young investors who are just starting out with an investment portfolio can afford to take a lot of risk. With such a long time horizon before retirement, investing to maximize the power of compound returns means focusing primarily on stocks.
TD AMERITRADE's offerings include 31 different U.S. stock ETFs and another 31 international ones. Yet despite all the ways these ETFs slice and dice the stock market, two of them will do most of the work for you. Vanguard Total Stock (NYSE: VTI) gives you coverage of the entire U.S. market, while Vanguard FTSE All-World ex-US (NYSE: VEU) covers the rest of the world. A roughly even split between these two makes sense in this increasingly global economy.
To make your portfolio even more aggressive, you'll want to add in small amounts of two higher-risk funds. iShares Russell 2000 (IWM) invests solely in small-cap stocks, and even though the Vanguard Total Stock ETF includes a small allocation to them, young investors can afford a more aggressive approach. Similarly, Vanguard Emerging Markets Stock (NYSE: VWO) fills in a gap that the all-world ETF leaves, giving you more exposure to the fastest growing economies on the planet.
ETF Portfolio #2: The boomer
As the last 10 years have shown, those who are closer to retirement can't afford to rely solely on stocks. Keeping around half your money in stocks using the ETFs mentioned above still makes sense for many, but you need fixed-income options like bonds and real estate investment trusts to create a less volatile portfolio.
TD AMERITRADE has 35 bond and REIT ETFs to help you do that. But as with the stock offerings, most of the bond ETFs are more specialized that you need. As a core holding, Vanguard Total Bond (BND) gives you an instant mix of Treasury, agency, and corporate bonds.
But three other bond ETFs have intriguing investments. iShares Barclays TIPS Bond (NYSE: TIP) provides the purchasing-power protection of inflation-indexed bonds. SPDR Barclays High Yield (NYSE: JNK) brings in higher-yielding bonds with junk ratings, where a higher yield compensates for a greater risk of default. For high tax-bracket investors, iShares National AMT-Free Muni (MUB) pays income that's free from federal income tax.
On the REIT side, Vanguard REIT Index (NYSE: VNQ) is a simple way to get a diversified set of real-estate investments in one package. Although fears of a drop in commercial real estate persist, many REITs have extremely attractive yields that are well above what bonds pay right now.
ETF Portfolio #3: Retired and loving it
For the most part, those in retirement can use the same set of stock and fixed-income ETFs, just in a more conservative mix. But one ETF that retirees may want to consider using to replace some of the more aggressive stocks above is the Vanguard Dividend Appreciation ETF (NYSE: VIG), which holds stocks with long histories of consistent and growing dividend payouts. The income you get from the dividend ETF will greatly exceed what a small-cap or emerging-market ETF will pay, and you should see a less bumpy ride as well.
Something for everyone
With so many choices, TD AMERITRADE makes it possible to pick the cream of the ETF crop to put together the best portfolio for you. Although several core ETFs are enough for most investors, the variety of offerings makes it easy to get just about anything you want -- all at the right price.
True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.
Fool contributor Dan Caplinger likes free things. He owns shares of Vanguard's REIT, Emerging Markets Stock, and Dividend Appreciation ETFs, as well as iShares Russell 2000. Charles Schwab is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Vanguard Emerging Markets Stock ETF. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy is free and risk-free.
