With Schwab's recent decision to cut expense ratio on its ETFs,
my 'World's Cheapest ETF Portfolio' now has a blended expense ratio
of less than 10 basis points a year.
Far less, in fact:0.0865 percent.
For the past five years, I've been tracking what I call 'The
World's Cheapest ETF Portfolio.' It's a broadly diversified ETF
portfolio holding U.S. stocks, international stocks, bonds, REITs
and commodities. It's designed for an aggressive investor. The
construction process is simple:Take the lowest-cost ETF in each
asset class, with no additional screens.
When I first started tracking this portfolio, in 2007, the
blended expense ratio was 0.16 percent per year. I thought that was
amazing. But thanks to a burgeoning price war and the aggressive
pricing of new ETF entrants like Schwab, the blended expense ratio,
as I said, has dropped to just 0.0865 percent.
Read that one more time:0.0865 percent.
For that, you can get a portfolio with institutional-caliber
diversification. You get exposure to 3,549 stocks in more than 40
different countries, 853 bonds and 19 different commodity
contracts. You get REITs, emerging markets, oil, grains and
gold.
You get a portfolio that will outperform the vast majority of
investors over the long haul. And you get it for a pittance.
To put the low fee in perspective:According to the Investment
Company Institute, the typical equity mutual fund charged 1.43
percent in fees last year. The total blended fee on my portfolio
for the next 16.5 years is the same price you'd pay for the typical
active equity mutual fund for the next 12 months. It's hard to
believe, but it's true.
|
IndexUniverse:The World's Lowest Cost ETF
Portfolio
|
|
Asset Class
|
Weight
|
Fund
|
Ticker
|
ER
|
|
U.S. Stocks
|
40%
|
Focus Morningstar US Market Index ETF
Schwab U.S. Broad Equity
|
FMU
SCHB
|
0.05%
0.04%
|
|
Developed
Markets Stocks
|
30%
|
Vanguard MSCI EAFE ETF
Schwab International Equity
|
VEA
SCHF
|
0.12%
0.09%
|
|
Emerging Markets
|
5%
|
Vanguard MSCI Emerging Markets
Schwab Emerging Markets Equity
|
VWO
SCHE
|
0.20%
0.15%
|
|
Fixed Income
|
15%
|
Vanguard Total Bond Market
Schwab U.S. Aggregate Bond
|
BND
SCHZ
|
0.12%
0.05%
|
|
REITs
|
5%
|
Vanguard REIT
Schwab U.S. REIT
|
VNQ
SCHH
|
0.12%
0.07%
|
|
Commodities
|
5%
|
UBS E-TRACS DJ-UBS Commodity TR ETN
|
DJP
DJCI
|
0.50%
|
|
Blended Expense Ratio
|
0.1120%
0.0865% |
The beauty of this portfolio is that, unlike the last
iteration-which included the ultra-low-cost but untradable funds
from the now-defunct FocusShares-all the ETFs except one (
DJCI
) are liquid, robust and tradable at low spreads.
Schwab isn't going to close any of these funds; they tend to
trade a penny or two wide, and they provide solid exposure. In
other words, this is an eminently ownable portfolio.
And when you consider the fact that Schwab account holders can
buy and rebalance these ETFs with no commissions, well, it's just
beautiful.
How should you change this portfolio? For starters, obviously
all of the weights depend on your personal situation.
Beyond that, you might want to swap out DJCI for something more
tradable. I also prefer commodity ETPs with a more optimized
approach to rolling their contracts.
On the ETF side, I'm a big fan of the PowerShares DB Commodity
Index Tracking Fund (NYSEArca:DBC), the United States Commodity
Index Fund (NYSEArca:USCI) and the GreenHaven Continuous Commodity
ETF (NYSEArca:GCC).
For taxable accounts, you're better off with an ETN. The
selection of liquid, optimized commodity ETNs are limited; I do
like the UBS E-Tracs CMCI Total Return ETN (NYSEArca:UCI).
What else could you add to this portfolio?
International bonds would be a good idea, and the low-cost
choices include the iShares S&P/Citigroup International
Treasury Bond Fund (NasdaqGM:IGOV), with an expense ratio of 0.35
percent, and the WisdomTree Emerging Markets Local Debt Fund
(NYSEArca:ELD), which has an expense ratio of 0.55 percent.
I could go on:liquid alternatives; dividend stocks? The choices
are many.
But the core point remains:Institutionally diversified
portfolios are now cheap … very cheap.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
reserved
Don't forget to check IndexUniverse.com's ETF Data
section.
Copyright ®
2012 IndexUniverse LLC
. All Rights Reserved.