My Retirement Portfolio Could Be Replaced With These 5 ETFs

by: Income Surfer

I'm sure you've heard the K.I.S.S. expression, you know "keep it simple stupid". The concept of "less is more", has been very accurate in many aspects of my life. I generally feel better when my home is less cluttered. I generally feel better when I'm less overloaded at work. My life is very busy and about to get even more hectic with the arrival of our son. I don't know that I'll have the time to pour over annual reports and various SEC filings going forward. I enjoy dissecting such reports, but between work and family I am becoming chronically short of time. I've started thinking that instead of having investments spread over 15 or 20 different companies, perhaps I should purchase 5 or 6 exchange traded funds (ETFs) and revisit them every 6 months.

For years investment legends like John Bogle and Warren Buffett have been touting index funds as the investing solution for the common man. Investment mutual funds and ETFs offer a low cost way to diversify my investment holdings. No longer would I need to pay attention to the quarterly earnings of dozens of companies. I wouldn't need to read the semi annual reports of the companies I am invested in. A change would free up a lot of time to live my life and spend time with my family.

"With Investing you get what you don't pay for"

~ John Bogle, Investment Legend and Founder of the Vanguard Group

For years now I have considered myself a value investor. I scour global stock markets looking for assets I perceive as being undervalued. I avoid assets that I consider overvalued. At present I think emerging market stocks and energy companies represent fairly attractive values. This article however, is about how less is more, and I'm striving for a set it and forget it investment solution for my core retirement portfolio.

With that in mind, I have come up with 5 ETFs which I believe meet both my investment allocation needs and give me the efficiency I desire. None of them has an expense ratio over 0.18%, much less a sales load. The ETFs I have chosen for my account are from the Vanguard family of funds, because of my past experience with Vanguard funds and their low expense ratios. If you prefer however, you can achieve largely the same diversification within another family of funds such as Fidelity or T. Rowe Price.


Let's start off talking about bond exposure. Most people require some bond exposure in their portfolios. How much exposure and to what kind of bonds is something you need to work out with your financial professional, based on your personal situation. In my case, an intermediate term bond fund such as Vanguards Total Bond Market ETF (NYSEARCA:BND) fits the bill. It has an expense ratio of 0.10%. About two-thirds (65.4%) of the ETFs is invested in various US Government securities and the rest in corporate bonds. The average duration of the bonds in the ETF is 5.5 years. Below is a chart of the ETFs holdings as of December 31, 2013. The chart below, as well as more information on this ETF can be found here.

U.S. Stocks

Next up is Vanguard's S&P 500 ETF (NYSEARCA:VOO), which is designed to track the movements and holdings of the S&P 500 Index. An ETF or index fund like this would provide most investors with the exposure they need to U.S. equities. It has an 0.05% expense ratio. This ETF is market weighted, which means it is more heavily invested in large cap blue chips companies. In fact 18% of the ETF's money is invested in it's top 10 holdings. The table below, as well as more information on this ETF, can be found here.

If you prefer U.S. stocks more heavily weighted to dividend paying stocks, than you may want to consider something like Vanguard's Dividend Appreciation ETF (NYSEARCA:VIG) or Vanguard's High Dividend Yield ETF (NYSEARCA:VYM). Each fund has a 0.10% expense ratio, and owns a variety of dividend paying blue chip stocks. Dividend paying, and more importantly growing, stocks have shown solid and consistent returns over the years. I am currently invested in several of the ETF's holdings, but do not own these ETFs themselves.

International Stocks

Vanguard's FTSE All-World ex-US ETF (NYSEARCA:VEU) might be a good option for the investor that wants to invest in a diversified group of large international companies. From the pie graph below you can see that this ETF invests in companies all around the world, but is most heavily invested in European and Asian companies. VEU has an expense ratio of 0.15%. If you look at the list of VEU's ten largest holdings (below), I am sure you'll recognize many of the companies. The chart below, as well as more information on this ETF, can be found here.

Emerging Market Stocks

If you are looking for exposure to emerging market equities, another option is to invest in something like Vanguard's FTSE Emerging Markets ETF (NYSEARCA:VWO). It invests in companies which are located in less developed countries (think China, Russia, and Brazil). This ETF has an expense ratio of 0.18%. Emerging market stocks have had a rough couple years, which is why I've recently begun averaging into them using VWO. Recently I wrote this linked article for Seeking Alpha on my reasoning. The thing I don't love, is that VWO is overweight financial service and banking companies. On the whole however, I'm very happy with my ownership of VWO. The chart below, as well as more information, can be found here.

Specialty or Niche ETFs

Last but not least, you can add a niche or specialty ETF if you like. I currently have my eye on Vanguard's REIT ETF Index (NYSEARCA:VNQ). It has an expense ratio of 0.10% and is diversified across the spectrum of real estate investment trusts (or REITs), but not as diversified as I would prefer. The top 10 holdings represent 40% of the ETFs investments, although, this figure is partially skewed by the relative low number of holdings in this ETF. The chart below, and more information, can be found here.


The purpose of this article is to demonstrate that an investor can achieve their desired portfolio diversification by buying a relatively small number of exchange traded funds (ETFs). The expense ratios of these ETFs can cost less than typical mutual funds. The investors will also save money by not having to trade in and out of various financial instruments. Most importantly, investors can save time by not having to stay up to date on a whole bunch of different companies. I have always straddled the line between being a value investor and being a dividend growth investor. I am now considering shifting the core of my retirement accounts into a small group of ETFs. I would do this over time, because I think world stock markets are pricey right now. I have begun moving in this direction with my recent purchases of Vanguard's Emerging Markets ETF . I don't know what the next opportunity Mr Market will give me, but I will be there to invest when it comes along.


The only ETF mentioned that I currently own is VWO. I do own individual stocks included in some of the other ETFs. Please consult your investment professional to create an asset allocation mix that meets your specific needs. Mine is a fairly unusual case given my young age and mix of investment holdings. This article is for informational purposes only and should not be considered a recommendation for anyone to buy, sell, or hold any securities. I am not a financial professional. The information above is available at and Yahoo Finance.

Disclosure: I am long VWO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.