There is no shame in acknowledging that stock-picking can feel daunting. Especially when you're first cutting your teeth in the land of stock market lingo, much of this anxiety is linked to diversification, or lack thereof, when first getting started — a problem that can be alleviated through ASX exchange-traded funds (ETFs).
Beginners might be surprised to learn that even experienced investors often utilise ETFs in their portfolios. The convenience of adding a collection of companies through a single investment is a beautiful invention of the financial industry — enabling portfolio diversity from day one.
Known as the core-satellite investing approach, investors can reduce their overall volatility while giving themselves the chance for additional upside. The 'core' is formed by a majority investment in an ETF (or multiple), leaving the remaining portion of funds for actively trying to outperform the market.
Image source: Getty Images
Which ASX ETFs I'd buy for a robust core
Squashing home bias in one fell swoop
A common pitfall among investors is home bias — a natural tendency to allocate most of their money to companies listed in their homeland. Approximately 98% of the global share market resides outside of Australia, meaning a lot of missed opportunities if we only fish locally.
To negate this psychological one-sidedness, I'd invest in the Vanguard MSCI Index International Shares ETF (ASX: VGS). A reasonably low-cost ETF at a 0.18% management fee, Vanguard's International Shares fund invests in around 1,500 companies from roughly 23 countries while excluding Australia.
What I appreciate about this ASX ETF is its breadth. Due to its global mandate, this ETF includes possibly some of the highest-quality companies in the world. For instance, businesses I hold in regard, including Apple Inc (NASDAQ: AAPL), Eli Lilly and Co (NYSE: LLY), ASML Holding NV (AMS: ASML), and LVMH Moet Hennessy Louis Vuitton SE (EPA: MC).
An ASX ETF packed with innovators
I'm a big fan of innovative companies, those that are on the cutting edge of technology. Often, such businesses are highly profitable, vastly scalable, and are led by visionary leaders.
The way I see it, innovation is the only way forward for society, so I want to position my portfolio to benefit from the value these transformative operators create over time. I believe the US tech sector will continue to be the epicentre of this, making Betashares Nasdaq 100 ETF (ASX: NDQ) my preferred pick.
However, it should be noted that there is an overlap between the VGS ETF and the Nasdaq 100 ETF, resulting in an elevated weighting toward the likes of Apple, Microsoft Corp (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Nvidia Corp (NASDAQ: NVDA), etc.
Buffett's secret sauce
The final investment I'd add to my portfolio to form a rock-solid core is Vaneck Morningstar Wide Moat ETF (ASX: MOAT). As alluded to in the name, this is an ETF invested in US companies that Morningstar's analysts believe have a sustainable competitive advantage.
Moats can come from many places, including network effects, brands, patents, scale, and product stickiness. In the words of Warren Buffett, the legendary leader of Berkshire Hathaway, "A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable."
This ETF gives the investor a slice of heavyweights such as Salesforce Inc (NYSE: CRM), Wells Fargo & Co (NYSE: WFC), and Nike Inc (NYSE: NKE).
