4 ETF Portfolios for 2022 (SIMPLE STOCK PORTFOLIO CONSTRUCTION) - YouTube

Since the beginning of the bull market in 2009, US  stocks have completely outperformed global stocks. 

But did you know that a decade  of US overperformance is usually  

followed by a decade of underperformance? That’s why it makes sense to hedge your bets  

and invest in both US and global stocks. In this video, we will look at 4 very  

different global portfolios that you  can easily build yourself - let’s go. 

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Global diversification is the key to portfolio  construction: It has very little downsides but a  

lot of benefits like reducing your drawdowns. Investing in only 1 country can be risky  

because of local stock market crashes. They can happen anywhere at any time. 

The best way to protect your investments  is to simply invest in all of the countries  

so that local stock market crashes  can be absorbed by your portfolio. 

In a way, diversified and passive investing  follows the principle of Socrates “I  

know that I know nothing”. You don’t try to  

market timing or do stock picking. You just invest into the total stock  

market regularly and take the market return. And building a globally diversified portfolio  

has never been easier or cheaper. Let’s start with ETF portfolio number 1:  

The world market cap portfolio. And this one invests globally and  

weighs the country exposure by  the size of their stock market. 

So I had a look at the total stock market size  by country, which in a chart looks like this. 

I then broke them down into US,  developed and emerging markets. 

What you end up with is an allocation like this  where around 40% of the global stock market  

sits in the US, 30% in other developed  countries and 30% in emerging markets. 

And you can easily build that portfolio yourself. All you need is 3 ETFs: 1 ETF that invests in the  

US, 1 that invests in other developed  markets and 1 for emerging markets. 

1 Option for a US ETF would be Vanguard’s  Total Stock Market ETF, ticker symbol VTI. 

The VTI invests in the total US stock  market - so not just the 500 companies  

of the S&P 500, but in over 4,000 companies. The VTI has a total expense ratio of 0.03% which  

is one of the cheapest ETFs globally. 1 Option for a developed markets ETF  

would be Vanguard’s FTSE Developed  Markets ETF, ticker symbol VEA. 

It also invests in more than 4,000 companies  from 24 developed countries - excluding the US. 

This ETF has an expense ratio of 0.05%  which is also one of the cheapest out there. 

And lastly, 1 option to invest in emerging  markets would be the iShares Core MSCI  

Emerging Markets ETF, ticker symbol IEMG. It invests in 2,500 companies from 28  

emerging market countries and  has an expense ratio of 0.11%. 

If you now invest 40% of your money in the  VTI, 30% in the VEA and 30% in the IEMG,  

your total portfolio would invest in  10,700 companies from 52 countries,  

of which 40% is invested in the  US, 8% in China and 6% in Japan. 

Your total portfolio would have a  weighted expense ratio of 0.06%,  

and over the last 5 years, that portfolio  would have generated a return of 7.3% per year. 

And it’s very easy to build the  World Market Cap portfolio yourself. 

The only thing you need to do is keep  investing into these 3 ETFs regularly  

and do a rebalancing like once a year. Rebalancing means that you bring back  

your portfolio allocation to its starting  value, like once a year, by either selling  

ETFs that have become too big or buying more  of the ETFs that didn’t perform so well. 

Next up is the green portfolio. And ESG investing is booming. 

It’s a type of sustainable investing  that focuses on 2 things: financial  

returns of investments and its positive  impact on the environment and society. 

In the last 5 years, the money invested  in ESG ETFs has gone up by 16x. 

In 2020 alone, over 200 new ESG ETFs were  launched and these numbers keep going up. 

If you want to know more about ESG  investing, its benefits and performance,  

then check out my dedicated ESG video in the link. If you want to build this green world portfolio  

yourself, then you can easily  do that with only 2 ETFs: 

1 ETF that invests in ESG US, another one  that invests in international ESG stocks. 

For the ESG US ETF, you could go for Vanguard's  ESG US Stock ETF, ticker symbol ESGV. 

It invests in US companies  with above-average ESG ratings. 

It excludes companies from the adult  entertainment, alcohol, tobacco, weapons, fossil  

fuels, gambling, and nuclear power industry. It invests in over 1,400 US companies. 

The ESGV has an expense ratio of 0.09% which is  one of the lowest you can find in the ESG space. 

1 option for the international  ESG ETF would be Vanguard’s ESG  

International Stock ETF, ticker symbol VSGX. This one invests in ESG-friendly companies in  

developed and emerging markets excluding the US. It invests in 5,000 companies from 51 countries. 

This ETF has an expense ratio of 0.12%  which is very low for what it does. 

If you now invest 40% of your money in  the ESGV and 60% in the VSGX, your total  

portfolio would invest in 6,600 companies from  52 countries, of which 40% is invested in the US,  

10% in Japan and 5% in China. Your total portfolio would have  

a weighted expense ratio of 0.11% - which is  the most expensive one of the 4 Portfolios but  

expected because of that extra ESG filter. And don’t get me wrong: For a global ESG  

portfolio, that expense ratio is ridiculously low. The problem with ESG ETFs is that most of  

them are young - so you don’t  have a super long track record. 

But over the last 3 years, that portfolio would  have gotten you a return of 9.8% per year. 

One thing to keep in mind before you do  ESG investing is that ESG ETFs use a filter  

to exclude non-ESG friendly stocks. And the stricter that filter is,  

the more companies are excluded - which is  bad for you in terms of diversification. 

That’s why this portfolio is the one  with the lowest number of stocks. 

So the first 2 portfolios were  already super simple to build. 

But it gets even simpler. The next portfolio is for the lazy  

investor where you can pick 1 globally diversified  ETF to build your one-stop-shop world portfolio. 

One option here would be Vanguard’s  Total World Stock ETF, ticker symbol VT. 

And the great thing about this ETF is that  it covers 98% of the global stock market. 

If you put all your money into this ETF,  then your total portfolio would invest  

in over 9,000 companies from 47 countries,  of which almost 60% is invested in the US,  

6% in Japan and 4% in the UK. One thing I have to point out  

here that I don’t like about this portfolio is  its super high US exposure which is far above  

their share in the global stock market. Moving on, your total portfolio would  

have an expense ratio of 0.07% - which is  dirt cheap considering what you get here. 

And over the last 5 years, that portfolio  would have generated a return of 8.5% per year. 

This portfolio is for the lazy investor, because  you don’t need to do any rebalancing here. 

All you need to do is keep investing  into this 1 ETF on a regular basis. 

What you probably noticed in all of the  previous portfolios so far is the high US share. 

That’s because most ETFs are weighted  by market cap which means that bigger  

and more valuable companies get a higher  share in an ETF than smaller companies. 

And currently, the most valuable  companies come from the US and that’s  

why they are dominating global ETFs. This can be an advantage if US stocks  

continue to outperform in the future. But here is the thing: No one knows. 

One way you could balance off your high US  exposure would be to weigh your portfolio  

by the global GDP distribution. So I had a look at the GDP by  

country - which looks like this. I then broke them down into US,  

other developed countries and emerging markets. What you end up with is an allocation  

like this where 25% of the global GDP distribution  sits in the US, 40% in other developed countries  

and 35% in emerging markets. And again, you can easily build  

this portfolio yourself. All you need is 3 ETFs:  

1 that invests in the US, another one  that invests in other developed countries  

and one that invests in emerging markets. You could use the same ETFs that we looked at  

in portfolio number 1. All you need to do is just  adjust the weights to be as close to the global  

GDP distribution as possible, which means that  you invest 25% of your money into the VTI, 40%  

in the VEA and 35% the IEMG. If you do that, your total portfolio  

would invest in 10,700 companies from 52  countries, of which 25% is invested in the  

US, 9% in China and 8% in Japan. Your total portfolio would have a  

weighted expense ratio of 0.07%, and over  the last 5 years, that portfolio would  

have generated a return of 5.9% per year. So you would have sacrificed a bit of that  

US outperformance of the last few years but  your assets would be distributed more evenly. 

There you have it: 4 globally diversified  portfolios that you can easily build yourself. 

You can go for the ones of this video  or adjust it to fit your personal needs. 

If you do that, remember 2 things: Number 1 is coverage. 

Try to cover as many of the 50  investable countries as possible. 

Number 2 is overlaps. Try to avoid holding  

different ETFs that invest in the same stocks. If you do that, you will have overlaps and you  

could end up with big concentration risks. But what do you actually think? 

Do you have a global ETF portfolio yourself? What are the countries with the highest exposure? 

As always - let me know in  the comment section below. 

I hope that this video could  bring some value to you. 

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Thank you very much for doing that - and peace!