The Only Portfolio You'll Ever Need?
Summary
TLDRThe speaker outlines a cost-effective ETF portfolio strategy for global investing, emphasizing diversification across various regions. They recommend using ETFs for low-cost access to multiple companies and suggest a passive approach, following global indices. The script details the selection of specific ETFs for North America, Europe, the Pacific region, and emerging markets, with a focus on minimizing fees. The speaker also explores the idea of replacing the North American ETF with an S&P 500 fund to further reduce costs, highlighting the trade-offs between diversification and simplicity.
Takeaways
- 🌐 The speaker aims to create a globally diversified ETF portfolio to minimize reliance on a single company, industry, or country.
- 📈 They advocate for global investing as a key to successful long-term investing due to its ability to spread risk.
- 💡 The script provides a step-by-step guide for building a portfolio, allowing investors to customize it to their preferences.
- 🇺🇸 The portfolio emphasizes ETFs that cover North America, Europe, the Pacific region, and emerging markets to reflect the global stock market distribution.
- 📊 The speaker uses major index companies like Footsie to understand the global stock market composition and select appropriate ETFs.
- 💰 ETFs are chosen for their low cost and ability to invest in multiple companies through a single investment vehicle.
- 📉 The portfolio is designed to be passive, with ETFs following various indexes that represent different parts of the world.
- 🏦 The speaker recommends specific ETFs, such as Vanguard's Footsie North American ETF (VNRG), for their low fees and coverage.
- 📋 The script mentions the importance of choosing between distributing and accumulating ETFs, with a preference for the latter for simplicity and reinvestment of dividends.
- 🔄 The annual fees for the entire portfolio are calculated to be as low as 0.11%, making it an attractive option for cost-conscious investors.
- 🔧 The speaker suggests that while the portfolio is already cost-effective, further tweaks can be made, such as replacing the North American fund with an S&P 500 Index Fund to reduce costs even more.
Q & A
What is the main goal of the ETF portfolio discussed in the script?
-The main goal is to create a diversified, global investing portfolio that is cost-effective and follows major global indices.
Why is global diversification important in investing according to the script?
-Global diversification is important to avoid reliance on a single company, industry, or country, as it helps mitigate risks associated with any one of these entities.
What is the role of ETFs in this portfolio strategy?
-ETFs are used as they allow investment in a wide range of companies through a single investment, and when chosen correctly, they can be one of the lowest-cost ways to invest.
Why does the script suggest using an S&P 500 fund instead of a broader North American fund?
-Using an S&P 500 fund can reduce costs significantly because there are more funds to choose from with lower fees, and it provides similar diversification as a broader North American fund.
Outlines
🌏 Building a Global ETF Portfolio
The speaker outlines a strategy for creating a cost-effective, globally diversified ETF portfolio. They emphasize the importance of not relying on a single company, industry, or country for investments, advocating for global exposure to mitigate risk. The speaker chooses ETFs for their broad market coverage and low costs, aiming for a passive investment approach that tracks global indices. They use data from a major index company to understand the global stock market distribution and seek ETFs that reflect this distribution, starting with North America due to its significant market share.
📊 Selecting ETFs for Regional Market Coverage
The speaker discusses the selection process for ETFs that cover different regions, starting with North America and then moving to Europe and the Pacific region. They mention the importance of including Japan in the Pacific region and choose specific ETFs for each area, considering fees and company coverage. For North America, they select Vanguard's footsie North American ETF (VNRG) for its low fee and broad company inclusion. For Europe, they choose Vanguard's Developed Europe ETF, and for the Pacific region, they combine two ETFs to ensure comprehensive coverage, including Japan. The speaker also addresses the option of using a single global ETF for simplicity but explains their preference for a more controlled approach.
🔢 Balancing the Portfolio with Emerging Markets and Fee Considerations
The speaker completes the portfolio by addressing the Emerging Markets, choosing an EY Shares fund for its cost-effectiveness. They then explain the process of weighting the ETFs in the portfolio to match the global market distribution, allowing for customization based on investment preferences. The resulting portfolio is shown to have an annual fee of just 0.11%, significantly lower than a single global fund offered by Vanguard. The speaker also explores the idea of replacing the North American fund with an S&P 500 Index Fund to reduce fees even further, resulting in a total portfolio fee of 0.06%. They acknowledge the potential downsides, such as the need for more management and the uncertainty of outperforming a single global index fund.
🤔 Reflecting on the Portfolio Strategy and Next Steps
In the concluding part, the speaker reflects on the portfolio strategy, mentioning the potential need for annual rebalancing and the constant urge to tweak the portfolio. They acknowledge the risk of wasted effort if the portfolio does not outperform a simpler, higher-cost global index fund. The speaker suggests that for most investors, focusing on earning and investing more in their day job might be more beneficial than perfecting an investment portfolio. They express a hint of FOMO as their own portfolio is not as optimized as the one discussed. The speaker invites viewers to share potential improvements in the comments and provides links to the portfolios on Invest Engine and Trading 212 for viewers to explore and replicate.
Mindmap
Keywords
💡ETF (Exchange-Traded Fund)
💡Portfolio
💡Diversification
💡Global Investing
💡Index
💡North America
💡Europe
💡Pacific Region
💡Emerging Markets
💡Accumulating ETFs
💡Fees
💡Rebalancing
💡S&P 500 Index Fund
Highlights
The speaker aims to create a globally diversified ETF portfolio, emphasizing the importance of not relying on a single company, industry, or country.
ETFs are chosen for their ability to invest in multiple companies through a single investment and their potential for low-cost investing.
The portfolio is built to be passive, with ETFs following various global indexes.
The global stock market is analyzed using the Footsie Global All Cap Index to determine regional breakdowns for ETF selection.
North America is the largest part of the global market, with the United States and Canada covered by the Vanguard Footsie North American ETF (VNRG).
The importance of choosing between distributing and accumulating ETFs is highlighted, with a preference for the latter for simplicity.
Vanguard's Developed Europe ETF is selected for its low fees and coverage of over 500 companies, including those from the UK.
To cover the Pacific region, two ETFs are chosen: one for developed Asia excluding Japan and another specifically for Japan.
The speaker opts for the iShares fund for Japan due to its low fee and inclusion of over 200 companies.
Emerging Markets are addressed with the Core MSCI Emerging Markets ETF, chosen for its cost-effectiveness despite higher fees.
The portfolio's weights are adjusted to match the global fund's allocation, allowing for customization based on investment preferences.
The annual fee for the entire portfolio is calculated to be just 0.11%, making it significantly cheaper than a single global fund.
A comparison is made between the proposed portfolio and Vanguard's single global funds, highlighting the potential savings over time.
An alternative strategy is suggested, replacing the North American fund with an S&P 500 Index Fund to further reduce costs.
The SPDR S&P 500 ETF is chosen for its exceptionally low fee of 0.03%, significantly reducing the overall portfolio fee to 0.06%.
The potential downsides of the proposed strategy, such as the need for rebalancing and the uncertainty of outperforming a single global fund, are discussed.
The speaker encourages viewers to consider their own needs and preferences when deciding on an investment strategy.
Portfolios are shared in the description for further exploration and customization, emphasizing the speaker's non-advisory role.
Transcripts
I've put together what I think could be
the cheapest and maybe even the best ETF
portfolio that investors can make today
and rather than just list out what you
need I thought it would also be really
helpful if if I explain how I've made it
step by step so that if you want to use
this as a starting point you can take it
and then tweak it to invest just how you
like so first up let me explain what I'm
trying to make and why I'm doing things
this way firstly I want to make a nice
Global investing portfolio and this
means I want to be invested in all kinds
of companies from all over the world
this is extremely important and this is
one of the keys to successful long-term
investing you don't want to rely on one
company one industry or one single
country as anything can happen so it's
valuable to make sure that you stay well
Diversified now for me this means
investing globally but there are plenty
of other people out there who will
disagree with that or suggest that all
you might need is the S&P 500 in fact I
did a video on that topic not long ago
so feel free to go and watch that one
after this now secondly I'm using ETFs
as they allow you to invest in lots of
different companies through one single
investment and if you pick the right
ones they can also be one of the lowest
cost ways to invest as well finally
we'll go without saying that I'm going
to build this portfolio to be passive so
any ETF that I use I just want it to
follow some kind of index that will end
up adding up to the whole world right so
the first step I need to do is figure
out what the world looks like in terms
of the global stock market once I figure
that part out I can then break it down
and look for ETFs that slot together
like a bit of a jigsaw puzzle now
there's a few ways you can do this but
for me I like to use kind of a major
index company like footsie now if I grab
their latest data for their Global all
cap index here's what the world looks
like from a stock market perspective in
descending order they break it down like
this North America EUR Pacific and
emerging markets and next to them as you
can see is how much of the global stock
Market is inside each region it's no
surprise that North America has the
biggest percentage and inside of that
the United States is really where all
the money is at Canada is included as
well but in comparison it makes up just
a tiny slice of the market now in order
for me to make an ETF portfolio that
reflects this I'm going to need to find
ETFs that focus on all of these
different parts of the world and then
put them together by the way if you
don't want to do any of this process
then there are plenty of ETFs out there
already that allow you to just buy the
whole world in one go the only real
benefit to doing things like this is
that you can get a bit more of control
and save on fees oh and if you're a nerd
like me you get to have some fun out of
it too right so let's start with the top
we need an ETF that covers North America
now believe it or not there aren't
actually that many to choose from for us
UK investors you've really only got a
couple here there's a Vanguard one and
an ey shares one and they either use the
footy index or the msci index there are
two versions of the Vanguard ETF though
just be aware of that and one pays a
dividend and the other doesn't it's
always worth noting that when you look
to invest in ETFs you should pay
attention to whether or not it's a
Distributing one or an accumulating one
for this portfolio everything I put
together will be accumulating as for me
personally I think this makes a lot more
sense and keep things simple with
Distributing funds the ones that pay
dividends you do have to make sure that
you reinvest that money now this can be
quite simple and cheap with some of the
newer platforms but some of the Legacy
platforms can make it a bit more
difficult or charge you fees to do that
so we'll stick with accumulation
versions and that leaves one choice here
which is vanguard's footsie North
American ETF with a ticker symbol of vnr
G this has some really nice low fees of
just 0.1% it's got more than 600
companies inside it and it will cover
both the US and Canada I would have
hoped for some more companies here to be
honest but this will work for now by the
way for any of the ETFs I'm speaking
about today you should be able to find
them on most good investing apps the
ones I use personally trading 212 and
invest engine do have all of these
available and I'll leave links in the
description for you to set up your own
accounts there's sign up offers
available please do read all of the
terms and conditions as usual also as a
bit of an added bonus I'll share these
portfolios as links in the description
so that you can take a bit of a deeper
look or use them as your own please do
remember though I'm not a financial
adviser I never claimed to be one so
please do what's right for you okay next
up now that we've done North America
let's do the next biggest Market Europe
there are a few different indexes that
cover this Market but I settle for one
which I think does the job with some
pretty low fees the one I went for here
is vanguard's developed Europe ETF also
has nice low fees of just 0.1% and
covers more than 500 companies it's
worth saying here that you will
sometimes see European funds that say
excluding UK and if you go with one of
these you'd need to add in the UK as a
separate ETF if you wanted to do this
for this portfolio I wanted to keep
things simple so I've just gone with one
fund but you can make it as comp licated
as you like right with that one done the
next biggest Market to sort out is the
Pacific region so this includes all of
the countries like Japan South Korea
Australia and Singapore Etc now when I
went to choose a fund to cover this area
I quickly saw that almost every fund out
there doesn't include Japan so to
counter this and make sure that we
include Japan I also had to find a Japan
ETF for us to put into this portfolio so
with a bit of a look around here's what
I ended up doing I've settled on two
ETFs this first one is the Vanguard foot
SE developed Asia excluding Japan now
it's got a fee of 0.15% and includes
almost 400 different companies and then
to round things off I actually decided
on this ey shares fund for Japan shock
horror a non Vanguard fund for once this
is a nice low fee of
0.12% and includes more than 200
companies inside of it right just one
final fund to sort out and then we can
finally start to get this thing
finalized so keyi viewers will know that
we are now left with just one part of
the world to sort out and that is the
Emerging Markets huge parts of the world
with enormous populations with potential
for growth now I settled on another ey
shares fund here is this was slightly
more cost effective than some of the
other options and here's the one I went
for the core msci Emerging Markets ETF
it does have the highest fees of the
bunch here at
0.18% as you'll see in a moment because
fees are weighted this only has a very
small effect on the overall fees in the
portfolio worth noting here that some of
you may see msci and foot and realize
that we are potentially mixing up two
index providers yes this is true they
are slightly different in how they
categorize the world and you can read up
on this if you want ultimately though
the benefit of having these separate
ETFs is that you can weigh them out how
you like and that's exactly what we're
going to do in The Next Step so in order
to do this next part I need to grab the
waiting from the first part of the video
and then use that as a useful guide to
decide how much of our portfolio we want
to have in each ETF here's where I think
one of the big benefits come in for
doing it this way if you really want to
you can slightly change the weights
depending on where you think you'll make
the most money I ended up settling on
these weights which I'll show you on
screen now now they match very closely
to the weight of the global fund and
this is personally how I'd have it set
up if this was for my own Investments as
a quick summary you can see that this
portfolio contains nine different
sectors with all kinds of companies
inside of it and you'll see that in
total you'd have a share in more than
3,600 companies now here's the big
question with all of these added up like
this how much are your annual fee is
going to be the answer as you can see on
screen here is just
0.11% so this means that for every
10,000 you had invested in a portfolio
like this you'd be paying just £1 a year
as always other fees apply when you
invest it would all depend on the
platform you use but this is very cheap
indeed on just the investment side
itself just as a comparison paying 0.11%
is half of the cost of the equivalent
single Global fund that Vanguard offer
if you have a look here at a really
popular fund vwl or vwp the fees here
are
0.22% now across a single year with
10,000 invested paying £1 more doesn't
sell much but fees add up and compound
over the years because it's not about
the fee itself but the missed future
growth for example paying
0.11% more per year over 20 years with
an investment of 300 a month would mean
that you'd end up costing yourself
around £3,000 in fees more than the
other person
and £3,000 divided up between 20 years
worth of months is just over 12 a month
in fees so you can save some money
investing that's almost like getting
Amazon Prime and a coffee free each
month now I could call it a day and say
this is the end of the video but then I
thought what if we tweak this a bit and
bend the rules slightly to make this
even cheaper now the biggest cost here
is coming from the biggest weight in the
portfolio which is right now this North
American fund but as we saw earlier it's
only got 600 companies inside of it and
in my view that's not really giving me
much more diversification than something
like an S&P 500 fund might do so then I
thought well what if we replace this
fund with an S&P 500 Index Fund instead
the benefit we'd get here then is pretty
much the same number of companies but we
could reduce our costs massively because
there's a lot more funds to choose from
after a bit of looking around I settled
on this one here the spdr S&P 500 ETF
with the ticker symbol of
spxl it has an insanely low fee of just
0.03% a year and if I replace the North
American fund with this one here's what
the portfolio will now look like your
total fee now becomes just
0.06% a year again for some perspective
that's almost four times cheaper than an
equivalent Global Index Fund from
Vanguard so what's the catch well it
depends really on you you see if you
want to build a portfolio like this and
you will have to do a little bit more
work you'll probably want to rebalance
it once or twice a year and just make
sure that those weights are still in
line with what you want and you will
always have a little voice in your head
that will tell you to tweak things all
the time also we have no idea if
something like this even though it's
slightly cheaper will actually end up
beating a single Global Index Fund with
higher costs you just never know really
so there's always a risk that you end up
wasting your time but hey alici had a
bit of fun and you learned a lot about
investing along the way I did do a video
a while back also looking at another
kind of port portfolio using just two
funds and I still think something like
this could be a great option too it's
simpler to use than something like this
and it just splits the world up into two
parts you got developed and emerging at
the end of the day though this one all
really comes back down to you and what
you need it's amazing just how much
choice we have nowadays and you can
easily make things a lot more
complicated than you need to I'd always
say that you're far better off spending
more time and effort making money in
your day job and getting that into the
stock market over the long run than
trying to tweak something to make it
perfect after all I'm not sure that
really exists anyway for me personally
I'm now getting a little bit of fomo as
my own portfolio doesn't look as good as
this one and actually costs a little bit
more I guess that's another negative
point2 then now as I said earlier I've
shared these portfolios below for you at
least the ones I've made on invest
engine but you can also make them on
other platforms like trading 212 as well
you just search using the ticker symbols
you can easily find them and then you'd
add them to a pie create your own
weightings and make it exactly how you
like if you're reckon this portfolio
could even be improved better let me
know in the comments section as I'm sure
there are some ways to be more creative
and you can build it and make it even
cheaper and even better anyway I'll see
you in the next video as always happy
investing
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