Are you a busy person who is looking for a simple approach to investing?
Are you someone who wants the lazy way to invest that is still considered a good approach?
Then this blog post is for you. In today's post we are going to be exploring the lazy portfolio strategy known as "the 7 Fund Portfolio".
Let us start here...
Exchange-Traded Funds (ETFs) offer a simple, cost-effective way to invest in a wide range of assets without the complexity of picking individual stocks or bonds. A 7-fund ETF portfolio is a strategic approach that can help beginners build a well-rounded, diversified investment portfolio with the potential for long-term growth.
What is a 7-Fund ETF Portfolio?
A 7-fund ETF portfolio is a diversified investment approach that uses seven different ETFs to capture exposure to a variety of asset classes. These asset classes often include U.S. stocks, international stocks, U.S. bonds, international bonds, real estate, short-term treasury bonds, and gold. Each ETF acts like a basket of investments, allowing you to own a small piece of many different companies or assets within that specific category.
Why 7 Funds? A Deeper Dive into Diversification
The 7-fund approach is all about diversification – spreading your investments across different areas to reduce the risk of any single investment drastically affecting your portfolio. Let us start of by using some USA examples and then we will look at some South African examples of a 7 Fund Portfolio as well.
These are US funds that can be part of a 7 Fund Portfolio:
Total U.S. Stock Market ETF: This ETF aims to mirror the performance of the entire U.S. stock market. It typically includes large, mid, and small-cap companies from various sectors, providing broad exposure to the American economy. Examples include the Vanguard Total Stock Market ETF (VTI) or the iShares Core S&P Total U.S. Stock Market ETF (ITOT).
Total International Stock Market ETF: This ETF invests in stocks from companies located outside the U.S. This helps you benefit from global economic growth and reduces reliance on the performance of just one country's market. Consider ETFs like the Vanguard Total International Stock ETF (VXUS) or the iShares Core MSCI Total International Stock ETF (IXUS).
Total U.S. Bond Market ETF: Bonds are debt instruments that companies and governments use to raise money. They are generally less volatile than stocks and can provide a stable income stream. A total U.S. bond market ETF typically includes a broad range of government and corporate bonds. Popular choices include the Vanguard Total Bond Market ETF (BND) or the iShares Core U.S. Aggregate Bond ETF (AGG).
Total International Bond Market ETF: Similar to the U.S. bond market ETF, this option invests in bonds issued by governments and corporations outside the U.S. It adds further diversification to your fixed-income holdings. The Vanguard Total International Bond ETF (BNDX) and the iShares Core International Aggregate Bond ETF (IAGG) are good examples.
Short-Term Treasury Bond ETF: These ETFs invest in short-term U.S. Treasury bonds, which are considered some of the safest investments in the world. They can provide a safe haven for cash you might need in the near future. Look into the iShares Short Treasury Bond ETF (SHV) or the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL).
Real Estate ETF (REIT): Real estate investment trusts (REITs) own or finance income-producing real estate. REIT ETFs allow you to invest in real estate without directly owning properties. The Vanguard Real Estate ETF (VNQ) and the iShares Core U.S. REIT ETF (USRT) are widely held options.
Gold ETF: Gold is often seen as a hedge against inflation and economic uncertainty. A gold ETF tracks the price of gold and can be a way to add this precious metal to your portfolio without physically owning it. Consider the SPDR Gold Shares ETF (GLD) or the iShares Gold Trust (IAU).
Do you prefer ETFs with shares from the US or shares with South African Companies?
United States ETFs
South African ETFs
A South African 7-Fund ETF Portfolio Example
While the previous examples focused on U.S.-listed ETFs, you can easily adapt this strategy to the South African market:
Satrix 40 ETF (STX40): Tracks the performance of the top 40 companies on the Johannesburg Stock Exchange (JSE).
Satrix MSCI World ETF (STXWLD): Provides exposure to a broad range of global companies outside of South Africa.
Satrix SA Bond ETF (STXBND): Tracks the performance of South African government bonds.
Ashburton Global Aggregate Bond ETF (GLBL): Invests in a diversified portfolio of global bonds.
Satrix Property ETF (STXPRO): Invests in South African real estate investment trusts (REITs).
NewGold Issuer Ltd (GFI): Tracks the price of gold, offering a hedge against inflation.
Satrix Cash ETF (STXCAS): A low-risk option that invests in short-term money market instruments.
Key Advantages of a 7-Fund ETF Portfolio
Diversification Beyond Borders: By investing in both U.S. and international assets, you spread your risk across different economies and regions.
Simplicity for Beginners: You don't need to be a stock-picking expert to get started. Simply choose your ETFs and set your desired asset allocation.
Potential for Growth and Income: The mix of stocks, bonds, real estate, and gold can offer both potential for long-term growth (from stocks and real estate) and income (from bonds and REITs).
Tax Efficiency: ETFs are often more tax-efficient than mutual funds due to their structure.
Popular ETF Providers and Choosing Your ETFs
As mentioned earlier, some well-known providers offer ETFs that fit into the 7-fund strategy: Vanguard, iShares (BlackRock), State Street Global Advisors (SPDR), Satrix, 1nvest, 10x, FNB, ABSA, REITWAY, Sygnia and Charles Schwab are providers available in your Easy Equities account. When choosing your ETFs, consider the expense ratio (the annual fee you pay for the ETF), the fund's assets under management (a larger AUM can indicate stability), and how well it tracks its underlying index.
How to access these ETFs?
You can access most ETFs directly with the provider or via a stockbroker.
My preferred approach is via Easy Equities or IBKR. I like this approach because it keeps me in control of my investments. I am able to move capital around as I please and I gain access to all the funds from one platform instead of multiple places.
Do you want to learn more?
Simple, sign-up for my Investing Mentorship program which includes 12 hours of video lessons, 12 one-on-one training sessions, 12 months of guidance, analysis tools, my research templates and more. The goal of the program is to turn you into a person who invests with a clear process. Click here to sign-up.
Happy investing.
Omega.
Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person’s financial situation is different; I recommend you speak to a financial adviser about yours.
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