After years of trying to DIY and beat the market, more people are finding that for the average investor, less is actually more. A simple portfolio made up of just four low-cost ETFs can provide nice diversification and outperform 99% of funds and managers. Why? Because with thousands of investments to choose from, it’s easy for investors to get overloaded and make bad, impulsive decisions.
- Review: Simple ETF portfolio that should beat most money managers
- Reviewed by: Janet Berry-Johnson, CPA (Forbes.com Contributor)
- Where to trade ETFs metioned in the article (Sign up promotional link): Join TD Ameritrade today! Barron’s ranked #1 for Long-Term Investing. Open a new account and get up to $600.
- Published on: November 26
Last modified: November 26
PowerShares QQQ Trust Series I (QQQ)
This fund holds large-cap U.S. stocks. Its investments exclude the financial sector, so it tends to focus on the technology and consumer sector. With a total expense ratio of just 0.20%, you’re paying just $2 for every $1,000 invested.
SPDR S&P 500 ETF (SPY)
As the name suggests this ETF tracks the S&P 500 index and carries a low expense ratio of just 0.09%.
iShares Core S&P Small-Cap ETF (IJR)
This ETF has an extremely low expense ratio of 0.07%. The fund seeks investment results corresponding to the performance of the S&P SmallCap 600 Index.
Vanguard FTSE Emerging Markets ETF (VWO)
This fund tracks the performance of the FTSE Emerging Markets Index. It holds large and mid-cap stocks in emerging markets around the world, including Brazil, Russia, India, Taiwan, China and South America. The expense ratio is 0.15%.
Limiting your portfolio to these four ETFs, which cover the technology sector, S&P 500, small cap and emerging markets allows an investor to be disciplined – a crucial characteristic for long-term success.
This four-fund portfolio works because, in the long term, index funds perform just as well as managed funds, if not better. And when compared to index funds, managed funds can be costly over time, as frequent trading incurs additional fees.
Remember that even the simplest portfolio needs tending. Don’t just set it and forget it. Rebalance at least annually, or take advantage of automatic portfolio rebalancing from a robo-advisor such as Betterment.
Allocate 25% into each and retire a millionaire.