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Think building an exchange-traded funds portfolio is complicated? It turns out you could do a lot worse than just buying the 10 biggest ETFs.
Sounds too easy, right? But take a look. Using data as of March 31, the 10 largest ETFs by assets were:
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Top 10 ETFs By Assets
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Fund
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Ticker
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Assets
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SPDR Index 500
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SPY
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$57,952
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SPDR Equity Gold
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GLD
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$33,500
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iShares MSCI-EAFE
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EFA
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$24,099
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iShares MSCI-Emerging Markets
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EEM
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$21,266
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iShares S&P 500
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IVV
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$14,743
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PowerShares QQQ
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QQQQ
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$12,339
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iShares Barclays TIPS
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TIP
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$11,588
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iShares Barclays Aggregate
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AGG
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$9,740
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iShares iBoxx Corp Bond
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LQD
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$9,395
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iShares Russell 1000 Growth
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IWF
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$8,426
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Source: NSX. Data as of 3/31/09. Assets are in $US millions.
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If you took an equal position in each of those ETFs, you'd have a nice, balanced portfolio: 60% stocks, 30% bonds and 10% gold.
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The Top 10 ETF Portfolio
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Asset Class
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Index
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Weight
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Ticker(s)
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U.S. Large Cap
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S&P 500
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20%
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SPY, IVV
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U.S. Large Cap Growth
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Russell 1000 Growth
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10%
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IWF
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Technology
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Nasdaq-100
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10%
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QQQQ
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International Developed
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MSCI EAFE
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10%
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EFA
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Emerging Markets
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MSCI Emerging Markets
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10%
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EEM
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Bonds - Broad-based
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Barclays Aggregate
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10%
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AGG
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Bonds - Corporate
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iBoxx Corporate
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10%
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LQD
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Bonds - TIPS
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Barclays TIPS
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10%
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TIP
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Gold
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Gold Bullion
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10%
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GLD
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Not only is that a reasonably well-diversified portfolio, it includes a number of twists and tilts that I find pretty appealing right now.
Starting in equities, both growth and large-caps have been performing relatively well, as they often do in difficult economic environments. Similarly, the tilt toward Technology via the QQQs captures one of the best-performing sectors in the market. And while the portfolio is light on international exposure, its strong relative weight in emerging markets is appealing.
In the fixed-income market, it is almost dead-on. If you split out the exposure in AGG, the fund is 16% corporate, 10% TIPS and 4% Treasuries. Considering that most experts think that Treasuries are at least fully valued, and corporate undervalued, that's just about right.
Finally, the addition of significant (20%) exposure to inflation-hedging assets like gold and TIPS is very appealing in the current environment, where many of us (even Jim) expect a major uptick in inflation.
Another approach would be to create a portfolio weighted by the size of assets held in each ETF. That portfolio is slightly more aggressive, with 68% equities, 16% bonds and 16% gold.
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The Asset-Weighted Top 10 ETF Portfolio
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Asset Class
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Index
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Weight
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Ticker(s)
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U.S. Large Cap
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S&P 500
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36%
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SPY, IVV
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U.S. Large Cap Growth
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Russell 1000 Growth
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4%
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IWF
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Technology
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Nasdaq-100
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6%
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QQQQ
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International Developed
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MSCI EAFE
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12%
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EFA
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Emerging Markets
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MSCI Emerging Markets
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10%
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EEM
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Bonds - Broad-based
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Barclays Aggregate
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5%
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AGG
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Bonds - Corporate
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iBoxx Corporate
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5%
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LQD
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Bonds - TIPS
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Barclays TIPS
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6%
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TIP
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Gold
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Gold Bullion
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16%
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GLD
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As good as these portfolios seem to be, I'm tempted to look a bit further down the tables to see what other ETFs are on the edge of being added to the mix.
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The 11-20th Largest ETFs By ETFs
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Fund
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Ticker
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Assets
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Vanguard MSCI Total Market
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VTI
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$8,294
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iShares Russell 2000
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IWM
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$7,836
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iShares Barclays 1-3 Yr Treas
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SHY
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$7,551
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DIAMONDS DJIA
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DIA
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$7,063
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iShares Russell 1000 Val
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IWD
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$6,165
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iShares FTSE/XINHUA China 25
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FXI
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$5,914
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Vanguard MSCI Emerging Markets
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VWO
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$5,311
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SPDR MidCap
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MDY
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$5,254
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iShares S&P 500 Gr
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IVW
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$4,585
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iShares MSCI-Brazil
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EWZ
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$4,495
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Source: NSX. Data as of 3/31/09. Assets are in $US millions.
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Looking through that list, there are a few tempting funds. I love the Vanguard MSCI Total Market ETF (NYSE Arca: VTI), the cheapest way to gain access to the total market. And I'd be very tempted to elevate the iShares FTSE/Xinhua China 25 ETF (NYSE Arca: FXI) into the mix, as I think China is underweight in global benchmarks and is positioned well to perform.
Still, that's all happening on the edges. You don't really have to go much further than the top 10. As it turns out, ETF investors are a pretty smart lot. So much for the madness of the crowds.
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