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I might be an avid investor, but I’m not a fan of stock picking. Personally, I find it time consuming, complicated, and stressful. I’m also embarrassingly bad at it. I’ve accepted that I can’t predict or time the market nor devote the time to analyzing financial ratios and earnings calls.
For this reason, I’m a fan of “lazy” investment portfolios using exchange-traded funds (ETFs) — ones that anyone can set up within minutes, automate contributions, and check on once or twice per year. Keeping investing accessible, simple, and consistent is the key to success here.
Why a lazy portfolio? For most investors, it is exceedingly difficult to consistently beat the market in the long run. Even professional fund managers often fail to outperform a simple index fund. Once you accept this, you can aim to match its returns with the least amount of effort and cost possible.
The goal here is to find the best ETFs that maximize exposure to the broad market and offer the lowest management expense ratios (MER). This helps reduce sources of risk that are controllable — underdiversification and high fees.
The four-fund lazy portfolio The Canadian four-fund lazy portfolio takes 15 minutes to set up and another 15 minutes every year to re-balance. It costs 75% less in fees than a mutual fund from a financial advisor and will match the market return. It consists of four ETFs in the following allocations:
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Keep in mind that this version is also 100% stocks, which are suitable only for investors with a high risk tolerance or a long time horizon. Other investors may want to include a 10-40% bond allocation.
Which ETFs to use? To invest in the Canadian stock market, consider buying Vanguard FTSE Canada All Cap Index ETF (TSX:VCN). VCN holds over 200 large-, mid-, and small-cap domestic stocks for an MER of 0.05% and has $4.8 billion in AUM.
To track the U.S. market, a good bet is Vanguard US Total Market Index ETF (TSX:VUN), which tracks over 3,000 large-, mid-, and small-cap U.S. stocks for just 0.16% MER.
For international developed markets, invest in Vanguard FTSE Developed All Cap ex North America Index ETF (TSX:VIU), which holds 3,914 stocks from Japan, the U.K., France, Switzerland, Australia, Germany, etc. for a 0.20% MER.
Finally, for international emerging markets, buy Vanguard FTSE Emerging Markets All Cap Index ETF (TSX:VEE), which holds 5,446 stocks from China, Taiwan, India, Korea, Brazil, Russia, etc. for a 0.24% MER.
How do I manage this portfolio? Once you have purchased these four ETFs in their proper allocations, you only have two tasks:
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The post How to Create a Complete “Lazy” Stock Portfolio With Just 4 Vanguard ETFs appeared first on The Motley Fool Canada.
Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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