The Only 4 ETFs You Need For a Well-Rounded Portfolio

A well-rounded stock portfolio is a shield against market volatility, spreading investments across size, sectors, and geographies to capture gains while dodging big losses.

When the tech sector tanked 28% in 2022, the energy sector was soaring 59%. Sure other sectors got hit hard too — financials dropped 12% and consumer discretionary stocks plunged 36% — but a diversified stock mix held losses to 10% to 12%. 

It’s about balance, achieving growth from innovators, stability from staples and averaging 8% to 10% gains yearly over decades. This setup fits any investor, trimming risk without killing reward, whether you’re building wealth or eyeing steady cash flow.

Exchange-traded funds (ETFs) make it a breeze to achieve this balance. These funds pack a slew of stocks into one buy, covering industries and market caps with zero hassle. Low fees keep your returns intact, and one trade delivers instant variety. No need to cherry-pick winners. Because ETFs track broad indexes or niches, they ensure your stock portfolio stays versatile and resilient through any storm.

Below is a four-ETF portfolio that covers all the bases and provide you with a lifetime of growth, income, and diversification.

Vanguard S&P 500 ETF (VOO)

The Vanguard S&P 500 ETF (NYSEARCA:VOO) is a cornerstone for most investors, offering broad exposure to the U.S. economy’s backbone: the 500 leading companies across all sectors. 

With $622 billion in assets, VOO mirrors the S&P 500 index’s 12.9% annualized return since 2010, blending growth and stability. Its 0.03% expense ratio beats most funds, keeping costs negligible over decades. 

While technology has grown to assume the larger sector weight, or 30.7% of the total, it owns considerable numbers of financial stocks (14.5%), healthcare (10.8%), and consumer discretionary (10.5%). 

Apple (NASDAQ:AAPL) is the largest position at 7.9% with Nvidia (NASDAQ:NVDA) representing another 6%). At around $514 per share, VOO is accessible via fractional buys and makes it a set-it-and-forget-it foundation for beginning investors and salty veterans.

Schwab U.S. Dividend Equity ETF (SCHD)

The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) pairs seamlessly with VOO in constructing your portfolio and enhancing income and stability. While VOO tracks the S&P 500’s broad growth, SCHD targets 100 high-dividend U.S. stocks that currently yields 3.8% annually. 

Better, it is skewed differently across sectors, with tech representing less than 10% of the total, ensuring investors aren’t overrepresented in any particular stock or sector. Moreover, 10% of its holdings are mid- and small-cap stocks, giving a range of coverage. 

With $70 billion in assets, SCHD leans on staples like Coca-Cola (NYSE:KO) while oil stock ConocoPhillips (NYSE:COP) is its largest position at 4.6%. The ETF has delivered 10.2% annualized returns since 2011, with a milder 1.6% drop in 2022 against VOO’s 18% tumble. SCHD’s 0.06% fee also keeps it cheap, complementing VOO’s expense ratio. At $27.61 per share, it’s affordable and adds significant cash flow and value to VOO’s growth focus, making it ideal for balancing risk and reward over decades.

The Vanguard Small-Cap ETF (VB)

The Vanguard Small-Cap ETF (NYSEARCA:VB) is the third component of a well-rounded ETF portfolio. With $153 billion in assets, VB tracks the CRSP US Small Cap Index, a collection of almost 1,400 small-cap stocks, which adds growth potential to VOO’s large-cap breadth and SCHD’s dividend stability. 

It has generated 10.8% annualized return since 2004, outpacing SCHD’s star performance. And though the dividend ETF offers some coverage of the small-cap market, VB’s focus on it improves a portfolio’s diversification under the right circumstances. Because small-caps have lagged their larger brethren, the bring a unique value component with a big growth kicker in a bull market. As interest rates are expected to be cut, that could provide the boost they need for outperformance. 

In 2022, VB fell 17%, aligning with VOO, but rebounded faster. As it leans into industrials at 22% of the portfolio, the small-cap ETF diversifies risk, while boosting long-term upside.

Vanguard Total International Stock ETF (VXUS)

When U.S. stocks zig, global markets tend to zag, which is why the Vanguard Total International Stock ETF (NYSEARCA:VXUS) rounds out our four-ETF portfolio. It adds global reach by tracking the FTSE Global All Cap ex US Index, some 8,580 stocks across developed and emerging markets.

Where VOO and VB focus on U.S. large- and small-caps, and SCHD delivers domestic dividends, VXUS diversifies geographically: Europe accounts for 40% of the portfolio, the Pacific region, 25%, and emerging markets at 26%, easing U.S.-centric risks. VOO is down 5% year to date, but VXUS is up over 6%, an 11 percentage point delta. The Vanguard Total International Stock ETF is a steady, international anchor for long-term balance.

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