A Globally Diversified Approach

Still, you'll notice the Penny-Pincher's Portfolio is equally split in its stock allocations between domestic and international weightings. Although there are some bargain-basement ETFs that fold coverage of non-U.S. developed markets under one umbrella, you're still paying more for such conveniences. By splitting your large-cap international exposure into a pair of separate ETFs, you can actually shave expenses.

Another nice result of going with two instead of one in developed foreign markets is that you have some added flexibility. Funds tracking the widely followed MSCI EAFE index had 65.7% devoted to Europe and 34.3% to Pacific markets heading into 2009. In the Penny-Pincher's Portfolio, half of the amount allocated to international large-cap developed markets goes to the Vanguard European Stock ETF (NYSE: VGK). The rest goes to its sister Pacific Stock ETF (NYSE: VPL).

The result is that Asia is overweighted in this model portfolio. But since both VGK and VPL cost the same, you can easily tweak weightings to more closely track broad market-cap-sized indexes such as the EAFE.

The portfolio also doesn't hold specific funds focusing on mid-cap stocks. That's due to the fact that the Vanguard Total Stock Market ETF (NYSE: VTI) covers the entire U.S. spectrum. Although it's mainly weighted in large-caps, it holds a notable contingent (about 20%) of mid-caps as well. Small-caps are also provided, although at levels (around 10%) some might feel could be spruced up a bit.

And as a so-called blend fund, VTI's smaller names are spiced liberally with more growth-oriented small-cap stocks. Allocating another 10% to VBR creates a nice style mix that also tilts the entire portfolio to the value side, which over the long term has shown a tendency to help improve overall returns.

Other Slicing & Dicing Options

Along those lines, you can also add some Vanguard Value ETF (NYSE: VTV). In the downturn of 2000-2002, it didn't fall quite as hard as VTI, which holds both growth and value stocks.

Of course, value has been slammed during the current credit crunch. So you could nix VTV and just go with VTI, which would save even more in expenses. And if you wanted to go more middle-of-the-road with small-caps, the Vanguard Small-Cap ETF (NYSE: VB) offers a blended approach with an expense ratio of 0.10%.

The Penny-Pincher's Portfolio won't be for everyone. It requires a level of comfort with using a total markets approach to gain broad coverage to niches such as mining, real estate investment trusts and companies exposed to commodities. Buying specialized funds to overweight sectors isn't in the game plan.

It's certainly not something to be taken carte blanche without consulting an adviser or some other knowledgeable investor you know and trust. The Penny-Pincher's Portfolio is being presented here as a building block to show what's possible.

And remember that in past Long Road columns, we've explored discount brokerages now offering transaction-free trading in ETFs. We've also written about several others now charging pennies on the dollar in commissions to buy ETFs.

The bottom line is that no matter how you choose to do it, pinching pennies in these tough economic times should be a no-brainer.

Murray Coleman is managing editor at IndexUniverse.com. He invites comments and suggestions for future columns at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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