Question:

I have read a lot about ETFs and how useful they can be for diversification, as well as the huge tax advantage over funds and individual equities. How feasible is it to create a portfolio that you don't change for your investment life? I’m looking to build a portfolio for my grandkids, and I don’t want to monitor it more than once a month.

Thanks for your input.

Alan

Answer:

Thanks for your question, Alan. That is absolutely feasible and I think there is a real benefit to simplicity. I’ve provided a couple resources below that can hopefully guide your thinking.

I think many investors fall into the trap of thinking that a portfolio needs to be complicated. Much of this comes from the way that successful investing is portrayed. We are led to believe that sophisticated investors are constantly adjusting their portfolios based on market conditions and have a complex set of holdings to take advantage of whatever is happening in the world. This is simply not true and there are countless studies showing that investors that trade more get lower returns.

My colleague Shani wrote a great article on her approach which I think is a valuable guide for any investor. It seems counterintuitive but the investments in our portfolios are not the most important driver of outcomes. It is asset allocation, minimising taxes and keep fees low that make the biggest difference over the long-term. A simple portfolio means an investor can concentrate on these other drivers of success. 

I wrote this article to outline some of the steps to building an ETF portfolio. Given your desire to limit monitoring I would lean into the simplicity aspect of it.

We’ve written an article on setting up 3 ETF portfolios. It includes fixed interest but since this is for your grandkids perhaps you want to lean heavily on shares given the long timeframes. I like this one from my colleague James as he goes through his thinking when he was putting together his own ETF portfolio.

We also have outlined our thoughts on some specific exposures to US and Aussie shares and our favourite global share ETFs:

Have a question? Write me at mark.lamonica1@morningstar.com 

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