ETFs That Cover the Planet - dummies

By Russell Wild

If you have a portfolio of under $10,000, or if you have a strong desire to keep your ETF investment management simple, you may be best off combining a total-market U.S. fund with a total international fund, the best of which are the Vanguard FTSE All-World ex-US ETF (VEU) and the Schwab International Equity ETF (SCHF).

Both of these funds give you instant exposure to everything in the world of stocks, minus U.S. investments. Both ETFs are ultra low-cost (0.13 percent for Schwab, and 0.22 percent for Vanguard), well-diversified, and tax-efficient. The iShares MSCI ACWI (All Country World Index) ex US Index (ACWX) is also a perfectly acceptable option, although it will cost you 0.35 percent a year.

If you really want to keep things simple, you can buy a single ETF that tracks an index of all stocks everywhere, U.S. and foreign. That one fund would be the Vanguard Total World Stock ETF (VT), with an expense ratio of 0.25 percent, or the iShares MSCI ACWI Index Fund ETF (ACWI), with an expense ratio of 0.35 percent. Both are perfectly fine options.

These indexed ETFs, like practically all others, are self-adjusting. That is, if your goal is to own a single global fund that reflects each country’s percentage of the global economy, as that percentage grows or shrinks, so will its representation in these ETFs. Easy!

If you have a portfolio larger than $10,000 and you are okay with adjusting its alignment (via rebalancing) once a year or so, you should consider keeping your stocks and bonds in separate funds and that you furthermore break down your stock holdings into U.S. and non-U.S. Then, assign your foreign holdings to each of at least three categories.

Although it is a great way to split up your stocks, on the international side a style breakdown is difficult to achieve. That’s okay. You can slice the pie into regions: European, Pacific, and emerging markets. Or slice it into large value, large growth, and small cap.