How to build an all-ETF portfolio

Whether you’re considering transitioning to an all-ETF portfolio or looking to refine your existing ETF strategy, having a well-thought-out approach is key to achieving your financial goals.

This guide will help you navigate the world of ETF investing, enabling you to build a portfolio that aligns with your objectives and risk tolerance.

We’ll explore the differences between an all-ETF portfolio and other portfolio types, and examine three distinct ETF portfolio structures.

Comparing all-ETF to other portfolio types

To see how an all-ETF portfolio stacks up against other common investment approaches, let’s compare it to actively managed fund and individual share portfolios:

Three approaches to all-ETF portfolios

The ideal all-ETF or core-ETF portfolio will depend on your investment goals, risk tolerance, and desired level of involvement. Here, we’ll explore three approaches to building an all-ETF portfolio, ranging from simple to highly customised.

The fundamentals

A minimalist all-ETF approach involves investing in just one or two broad-market ETFs, such as a total world stock market ETF and a bond market ETF.

This strategy is ideal for investors who prioritise simplicity and a hands-off buy-and-hold approach, enabling them to capture overall market returns with minimal effort.

For example, an investor might allocate half of their portfolio to a diversified portfolio ETF like DHHF Diversified All Growth ETF which provides exposure to around 8,000 equity securities listed on over 60 global exchanges, and the other half to a broad Australian bond fund like AGVT Australian Government Bond ETF . The ratios can be adjusted according to the investor’s risk profile.

This straightforward approach provides extensive diversification across global equities and domestic fixed income, requiring minimal and easy rebalancing and providing a low-effort investment experience.

While it doesn’t allow for much customization, that isn’t necessarily a problem depending on your investing goals. Many investors simply don’t have the time or interest required to become more deeply informed, and for them, a portfolio like the one above can provide regular income and capital growth with minimal effort.

A moderate approach

This intermediate approach allows for more targeted allocation and greater control than the simple portfolio outline above, while still requiring relatively little management effort on the part of investors.

For example, if you are comfortable holding somewhere between 4 and 6 ETFs, a potential portfolio might look something like:

• A domestic large-cap such as A200 Australia 200 ETF  providing exposure to 200 of the largest Australian companies
• A global ex-Australia ETF focused on developed countries such as BGBL Global Shares ETF
• A fund providing exposure to the S&P 500 like QUS S&P 500 Equal Weight ETF
• A fixed income ETF with exposure to Australian government and corporate bonds for income potential, like OZBD Australian Composite Bond ETF
• An ETF providing exposure to gold bullion, such as QAU Gold Bullion ETF – Currency Hedged

While your approach may differ, this list provides an idea of how you can spread your investments across a range of regions, sectors, and asset classes, while sticking to an all-ETF portfolio.

Granular portfolio

Including multiple ETFs in your portfolio will give you even greater control, enabling the creation of a highly customised portfolio that covers a wider range of sectors, geographies, and asset classes. The benefit of this approach is the ability to create a more carefully managed, goal-aligned portfolio.

This strategy can be particularly effective when implementing a core-satellite approach to investing. In a core-satellite portfolio, the “core” typically consists of broad-market, low-cost index funds or ETFs that provide overall market exposure, while the “satellite” positions are made up of more specialised exposures focused on specific themes or geographies.

By using multiple ETFs, investors can fine-tune core and satellite positions to achieve a balance between a portfolio foundation and potential outperformance.

An all-ETF portfolio might include the funds for the core component of the portfolio, as mentioned above, along with the addition of satellite holdings like:

• Access to India’s highest quality companies through IIND India Quality ETF
• Exposure to the cybersecurity industry via HACK Global Cybersecurity ETF

The above ideas are illustrative only and not a recommendation to make any investment or adopt a particular strategy. They are meant to demonstrate how you can construct an ETF portfolio by blending different assets based on what aligns best with your investment goals and risk tolerance.

Achieving financial goals with all-ETF portfolios

From commodities to international market indexes and bonds, ETFs provide a vehicle for investing in a wide range of asset classes, geographies, and market sectors. Far from being restrictive, building an all-ETF portfolio offers a convenient and accessible way to take control of your financial future.

Whether you opt for a simple approach, a more intricate core-satellite strategy, or you land somewhere in between, ETFs provide the flexibility, diversification, and cost-effectiveness that modern investors value.

The key to constructing your all-ETF portfolio is — much like any investing approach — dependent on your investment goals, timeframe, risk tolerance, and values. Use these to guide the creation of your portfolio.