The Only Portfolio You'll Ever Need?

Summary

The 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

00:00

🌏 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.

05:00

📊 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.

10:01

🔢 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.

Keywords

💡ETF (Exchange-Traded Fund)

An ETF is an investment fund that is traded on stock exchanges, much like individual stocks. They are designed to track the performance of specific indices, sectors, commodities, or assets, and offer diversification and professional management. In the video, the creator discusses building a portfolio using ETFs for global investing, highlighting their low cost and ease of investing in a broad range of companies.

💡Portfolio

A portfolio refers to a collection of financial assets such as stocks, bonds, commodities, cash, and ETFs, held by an investor. The video's theme revolves around creating a diversified portfolio using ETFs to invest globally, which is crucial for long-term investment success as it spreads risk across various companies and regions.

💡Diversification

Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to mitigate risk. The script emphasizes the importance of diversification in global investing, suggesting that relying on a single company, industry, or country is not advisable due to unpredictable market events.

💡Global Investing

Global investing involves investing in companies or assets from around the world, not just in one's home country. The video discusses creating a global portfolio to ensure exposure to a wide range of markets and opportunities, which is considered key to successful long-term investing.

💡Index

An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. In the context of the video, ETFs follow various indexes, such as the FTSE or MSCI, to provide broad market exposure. The creator uses index data to determine the composition of the global stock market for portfolio allocation.

💡North America

In the script, North America represents one of the major regions of the global stock market, with the United States and Canada being the primary markets within this region. The creator discusses finding ETFs that focus on North America to ensure the portfolio has exposure to this significant portion of the global market.

💡Europe

Europe is another significant region in the global stock market. The video mentions selecting an ETF that covers the European market, with the creator choosing a Vanguard ETF that includes more than 500 companies and has low fees, to be part of the diversified portfolio.

💡Pacific Region

The Pacific region includes countries like Japan, South Korea, Australia, and Singapore. The script describes the process of choosing ETFs to cover this region, ensuring that the portfolio has exposure to the economic activities and growth potential of these countries.

💡Emerging Markets

Emerging markets are nations with social, political, and economic growth that are investing in rapid growth and development. The video discusses including an ETF that focuses on emerging markets to capture the potential for growth in these areas, which are often characterized by large populations and significant economic potential.

💡Accumulating ETFs

Accumulating ETFs are funds that reinvest dividends back into the fund, increasing the number of shares held by investors. The script mentions choosing accumulating ETFs for the portfolio to simplify the investment process and avoid the complexities of managing dividend reinvestment.

💡Fees

Fees in the context of investing refer to the costs charged by investment funds, such as ETFs, for managing the assets. The video emphasizes the importance of low fees in ETFs, as they can significantly impact the overall return on investment over time. The creator calculates the total fees for the proposed portfolio and compares them to other investment options.

💡Rebalancing

Rebalancing is the process of adjusting the weightings of different assets in a portfolio to maintain the desired level of risk and return. The script suggests that investors may need to rebalance their portfolio once or twice a year to ensure that the weights of the ETFs align with their investment strategy.

💡S&P 500 Index Fund

The S&P 500 Index Fund is an investment fund that aims to replicate the performance of the S&P 500 Index, which includes 500 of the largest U.S. companies. In the video, the creator proposes replacing the North American ETF with an S&P 500 Index Fund to potentially reduce costs, although this may limit diversification.

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