Quick page links – ETF Portfolio Inspiration
Are you ready to start building your own All Seasons Portfolio?
As you may know, the All Seasons Portfolio in theory is built by 30% stocks, 55% bonds, 7.5% gold and 7.5% commodities, to achieve the risk parity effect of the portfolio. But how do you easily get access to these asset classes? What you need to do, is to find suitable Exchange Traded Funds, or “ETFs”, that track these asset classes effectively. And you will need at least 5 different ETFs, but how do you find them?
For a bit more detail on the splits and the reasoning behind the asset allocation, check out my blog post about Getting Started With the All Seasons Portfolio.
On this page, we’ll go through the basics of what to think about when you are looking for ETFs, more about the portfolio splits between the asset classes, how to choose your ETFs in your portfolio, and, finally, some examples of ETFs available in Europe and how to build an All Seasons Portfolio with them.
About Choosing ETFs
As a European citizen, you will have to look for UCITS classed ETFs. This classification is decided by the EU and means that the fund is suitable for non-professional investors. Basically, all the ETFs available with your European based broker will be UCITS marked.
You should also find a good broker for trading your ETFs. This service will be offered by both most banks, but also by online based specialized brokers. Be careful about trading fees, as they tend to vary. Most commonly, it is more expensive to use a regular bank than an online broker. Online brokers tend to have a larger variety of ETFs to chose from. It is worth putting in the extra hour to research and compare.
When choosing the ETFs you want to include in your portfolio, there are two main things to consider: management fees and whether the ETF is “accumulating” or “distributing”.
Fees drain your wealth, and they do so at a worrying speed. They make you loose money in the same way as compound interest makes you money. For example, with 2% annual fees, after 20 years, half of your then potential total wealth will have gone in fees. Most ETFs have fees around 0.1%-0.5%, and you should try your best to keep them low. If your portfolio averages around 0.2%-0.3%, that is acceptable.
Depending on where you live, it might be more or less effective to have distributing or accumulating ETFs. This means whether the ETFs pays you dividends on a regular basis or whether any gains in the ETF is reinvested. In most countries, you have to pay tax for dividends, which makes it more tax effective to choose accumulating ETFs. But, in some countries, for example Sweden, there is no tax triggered by dividends, so in such countries it may be more cost effective to choose distributing ETFs. This is because one key part with the All Seasons Portfolio Strategy is rebalancing, which means selling ETFs that you are overweighted in and buying ETFs that you are underweighted in. With distributing ETFs, you avoid the transaction costs associated with the selling part.
When looking for ETFs, I have found that the Morningstar ETF Screener is a handy tool, where you can easily search for categories and compare ETFs to find those that suit you.
Quick page links – ETF Portfolio Inspiration
Portfolio Splits
To build your own All Seasons Portfolio, and to achieve the right risk parity model, you will need to find ETFs for each asset class in your portfolio. These are Long-Term Treasury Bonds, Inflation Linked Bonds (TIPS), Stocks, Commodities and Gold. I have included a pie chart here below with the splits according to the All Seasons Portfolio Strategy.
These asset splits are quite easy to replicate with ETFs, but you may not get the percentages exactly right from the beginning. That is because the ETFs will have different prices that don’t really match with each other. If your portfolio is worth € 2,000 while and ETF is priced at €150, one unit will be 7.5% of your portfolio, meaning that it will be impossible to get it right to the exact percentage needed.
What you will need to do, is to translate each of the asset classes into actual ETFs. For example, for the Stock part of 30% you will need to find an ETF with broad exposure to a stock market index, such as the Xtrackers MSCI World UCITS ETF or Vanguard FTSE All-World UCITS ETF. Both of these have global stock market exposure to Large Cap companies and will follow the general world stock markets with low fees (0.19% and 0.22% respectively). Or, you can get more focused like only buying American stocks, in which case Vanguard S&P 500 UCITS ETF is a good choice with a fee of 0.09%.
When you have decided on an ETF for your stock part, you will do the same exercise for bonds, TIPS, gold and commodities as well. To help you on your way, I have included a list of ETFs at the bottom of this page, along with examples of combined portfolios depending on what market you want to be exposed to. These are common ETFs, so you should be able to find most of them with your broker by searching by the ISIN number.
If you are a European investor, it might also be relevant for you to pick ETFs with exposure to American markets, but with a currency hedging included in the ETF, so that you are not exposed to the fluctuation between USD and EUR. I have therefore included one EUR Hedged portfolio below as an example.
Also make sure that you are buying the ETFs on a relevant stock exchange. Most ETFs in Europe are listed in many places, such as on the exchanges in Frankfurt, London, Milano or Amsterdam. Be mindful, as some broker charge you a fee for each exchange that you have assets on, so do not spread your holdings too much between them.
Quick page links – ETF Portfolio Inspiration
How to choose ETFs
You can easily set up you All Seasons Portfolio and only need from 5 different ETFs to get started. If you then want more control or want to target specific markets, you can add more ETFs to your mix to suit your liking. Just remember to keep the different assets at the aimed splits of the All Seasons Portfolio.
Bear in mind that in my portfolio, I have chosen to include 5% corporate bonds and have reduce my Equity portion with the same amount. This is to balance my risk as I have included small cap value stocks that are more volatile than large cap stocks. You can find more information of my portfolio on the My Strategy page.
To give you some inspiration on how to think, I have included a few example portfolios depending on how simple or extensive portfolio you are after and what markets to target. This is not an investment advice, but only examples of the general concept of building a portfolio with different assets. If you would like to find other similar ETFs, and as mentioned before, the screening tool on Morningstar is highly recommended. But these ETFs are good to start your search with and to compare with others you may find.
When locating the particular ETFs that you have decided on from your screening, I recommend that you use the ISIN number to find the ETFs with your broker. You can also start off with a small portfolio and expand it over time. If you only invest smaller amounts per month, build your portfolio by buying one ETF at the time, as it is important that you keep transaction costs at a minimum and don’t spread yourself too thin.
Quick page links – ETF Portfolio Inspiration
Note that the below portfolios are shown as examples only and do not constitute investment advice. Therefore, please do not copy any of these blindly without doing your homework or searching for additional information. Also follow the blog to see more in depth reasoning behind picks, as some choices could be better than others. Such reasoning cannot fit on this page alone. For example, choosing American Long-Term Treasury Bonds will function better than global equivalents during a distressed financial environment as the US Dollar is considered a safe-haven, while other countries’ bonds does not have the same status. Read more about this in the March 2020 Portfolio Update post.
Below the list, I have included brief explanation and reasoning for each portfolio, where you can get additional flavour for the setups.
All sheets below are supported by Google Spreadsheets. I apologize for slow loading time caused by this.
ETF Inspiration
Reasoning behind example portfolios
A couple of notes for the different example portfolios:
Portfolios 1 and 3: American portfolios
The portfolios 1 and 3 are just an European (1) and American (3) version of more or less the same portfolio, both with exposure to only American stocks and bonds, and without any currency hedging. The ETFs included are some of the most common ones on the market for the sought exposure as they have some of the highest asset under management. This portfolio would suit any investor appreciating exposure to the US, considering it is the leading economy in the world
Portfolio 2: EUR Hedged American Portfolio
Portfolio 4: European Portfolio
The example portfolio 4 is a home market portfolio for European investors. Here, the investor will have only local exposure, which helps her or him to grow wealth at the same rate as her or his surrounding economy develops. With this portfolio, you will get access to the stocks of 600 largest European companies, and the bonds of the strongest countries in the Eurozone. Gold and commodities are by fact global assets, but in this portfolio, we have included a commodities ETF with longer duration on the futures contracts.
Portfolio 5: Global Portfolio
For the investor that does not want his or her exposure completely toward the United States, there is the portfolio example no. 4, which will give you a global exposure. Here, you will also have exposure to European Stocks and Government Bonds, but also toward China, which is a growing economic power. For example, instead of only being exposed to American bonds, your bonds will be exposed to highly rated countries, with low risk of default. You should therefore have a safe place for your money, but be less exposed to events on the financial markets that especially hits the American economy, such as the housing market crash of 2008. The portfolio is unhedged.
Portfolio 6: Global Small Cap Value
This is a high risk portfolio, that may not completely follow the risk parity formula. Historically, small cap value companies have outperformed the large cap companies by several percentage points, but that is not a guarantee for future return. With this portfolio, you could get excess returns from faster growing companies with value emphasis, but expect higher volatility. Do your research before choosing this portfolio and be sure to follow your rebalancing strategy.
Please also note that most of the ETFs are available in both distributing and accumulating versions. You can check this out by finding the ETF on each ETF provider’s web page, where you in most cases will find the version you are looking for.
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