(Aug 14): Low-cost exchange-traded funds are a quick and easy way to diversify one’s investments. But is it possible to build a portfolio exclusively with these instruments? Phillip Securities Research analyst Pei Sai Teng thinks so. Pei and his team have curated several model ETF portfolios with a mix of bonds, stocks and gold. The percentage allocated to each asset class varies depending on the investor’s risk appetite. The conservative version has an allocation of as much as 60% to short-term, sovereign and corporate bonds. The aggressive version has a higher allocation to stocks. There is also a balanced version of the portfolio. Returns over the last five years have ranged from 21% to 42%.
“ETFs lower the barrier to entry while allowing [investors] to grow their money and diversify their risks,” Pei says, adding that the portfolios may be appealing to millennials who think investing in individual stocks requires having to do a lot of homework and exposes them to too much risk.
Simple, low-maintenance ETF portfolios such as Pei’s are likely to catch on as dozens of robo-advisers compete for the investment dollars of young professionals or novice investors. “After [witnessing] the 2008 financial crisis, the younger generation values stability,” says Freddy Lim, co-founder of robo-advisory firm StashAway and a former managing director at Nomura International.