According to many different pundits and financial analysts, one of the biggest mistakes made by novice investors is over-complicating a simple portfolio of ETFs.
Many investors feel the need to break down suggested portfolio weightings into small positions of multiple ETFs. A 70/30 stock/bond allocation isn’t good enough for these folks.
They feel the need to split each allocation into small sub-sectors. Suddenly, these investors own ETFs dedicated to obscure sectors like junior oil stocks or Japanese small-cap stocks.
Fortunately, there are much simpler options. Like the iShares MSCI World Index ETF (TSX:XWD).
The world index ETF delivers what it promises, giving investors access to the whole world of investing opportunities.
Although it only owns three different ETFs--which cover the S&P 500, worldwide developed markets, and the TSX 60--those underlying ETFs have exposure to approximately 1,500 worldwide large and mid-cap stocks.
The ETF’s largest position is in the S&P 500, which accounts for approximately 60% of overall assets. Exposure to worldwide developed markets is next, with approximately 37% of assets. And finally, the TSX 60 accounts for about 3% of assets.
There are some issues with this ETF. It doesn’t have exposure to emerging markets, although it’s pretty obvious some of its 1,500 constituents are doing business everywhere. It also isn’t hedged to Canadian dollars, which makes it vulnerable to currency moves.
Still, the ETF is a simple and effective way for investors to get exposure to most corners of the globe at a reasonable management fee. Passive investors without much expertise could do a lot worse.
