If you want to invest your assets over the long term, you should diversify your money as much as possible. This means that it should be spread across several asset classes (equities, bonds, commodities, real estate). In addition, the individual asset classes should also be broadly diversified. The equity portion should therefore not be too dependent on individual regions or sectors.
In this article, we have compiled 8 ETF portfolios that reflect the global market as well as possible and form a promising risk-return profile over the long term.
1. All in One
First, the simplest of all options: If you don't want to deal with rebalancing or any investment strategies, there is the option to integrate positions from developed as well as emerging markets into your portfolio with just one ETF. The MSCI All Country World Index (ACWI) or the FTSE All-World each track the performance of well over 1,000 companies from around the world and also perform the rebalancing themselves.
2. The Classic
This classic ETF portfolio combines the MSCI World and MSCI Emerging Markets indices. 70% of the portfolio is invested in the MSCI World, which tracks companies from 23 industrialized countries, but does not include emerging markets. Therefore, 30% is added to the MSCI Emerging Markets, which reflects the performance of 27 emerging markets. In contrast to the first portfolio, you are flexible in the composition of developed and emerging markets and can decide for yourself whether you want to use the popular 70-30 weighting or prefer to weight one of the two ETFs a bit more or less.
The combination of the two indices is so popular because it is a very simple way to participate in almost the entire global stock market. Also, the portfolio is very low maintenance: other than rebalancing every now and then, there is nothing else to do. It should be noted, however, that the USA is very strongly represented in the MSCI World with over 60%. To compensate this there are possibilities, which will be presented in later portfolios.
3. The same in green
In times of climate change and morally questionable structures, we need to drive change in terms of sustainability in all areas of life. For the classic 70-30 portfolio, there is a variant that maps the indices with ESG filters.
The MSCI ESG Screened Index excludes companies that do not meet certain benchmarks in the environmental (e.g., pollution, scarce natural resources), social (e.g., labor issues, data security), and governance (e.g., unethical business practices) areas. In addition, companies that make their money from firearms, nuclear weapons, or tobacco are not included in the index. The MSCI World is thus "adjusted" by just under 100 companies and instead of 1,600 positions now only includes 1,498.
By the way, the performances of the last few years show that you don't have to choose between good returns and sustainable investments. If you compare the returns of the last 10 years, you can see that the ESG Screened variant could even just beat the classic MSCI World. You can read more about sustainable investing in another blog article here.
4. Low Risk
If you want to reduce the fluctuations and the risk of your portfolio, it is advisable to invest more in government bonds. In terms of expected return, a few percent may be lost, but the historical loss periods of the portfolio are significantly lower.
The portfolio consists of 75% government bonds from all over the world and 25% from a broadly diversified MSCI ACWI index.
The approach of this portfolio is to avoid the strong weighting of the USA and the weak representation of Europe in the MSCI World. For this purpose, the world market is split into the regions North America, Europe, Emerging Markets and Pacific.
North America is now weighted at only 35%. Investments in the region can be made via the MSCI North America. However, this contains 95% positions from the USA, which is why an MSCI USA can also be used as an alternative. Europe is weighted with 25%, emerging markets with 30% and the Pacific region with 10%.
The combination of these four ETFs ensures that the weightings of Europe and the USA are adjusted, but the rebalancing is of course somewhat more complex than with the classic 70-30 solution.
6. The All Weather-Portfolio
The All Weather-Portfolio goes back to the legendary hedge fund manager Ray Dalio. Launched by Dalio in the 1990s, the All Weather Portfolio, with its diversification into bonds, equities and commodities, is designed to be a robust investment that is particularly attractive in times of strong market turbulence. The combination of three asset classes covers a broad spectrum and provides a crisis-proof hedge for the investment. If, for example, stock prices fall, it is possible to profit from rising bonds and vice versa.
However, with an equity allocation of only 30% and a bond allocation of over 50%, the portfolio is definitely primarily geared to investors with a low risk tolerance and a focus on capital preservation.
The dividend strategy is a popular approach to pursue the goal of passive income. There are several ETFs available on the market that invest exclusively in stocks that have a long history of paying above-average dividends.
These ETFs offer an easy and cost-effective way to bet on dividend guarantors and participate in the price gains and distributions. Historically, however, dividend ETFs have not usually outperformed the broader MSCI World Index. This is partly because growth companies, such as Amazon, generally do not pay dividends, preferring to use the funds for further growth. So while the strategy offers continuous cash flows, it cannot be assumed to deliver a higher return than normal, broad-based indices.