Exchange-traded funds (ETFs) have exploded in popularity on the ASX over the past decade, with index funds from provider Vanguard leading the charge.
Many Vanguard ETFs can be found amongst the most popular index funds on the ASX, with the Vanguard Australian Shares Index ETF (ASX: VAS) the long-running winner of the most popular ASX ETF on the market.
One of the many reasons ASX investors love index funds is their simple nature. You can easily build a complete investment portfolio, diversified over multiple companies, industries or entire markets, using only a few ASX ETFs.
Today, let's discuss how anyone can build a complete investment portfolio using just three Vanguard ETFs.
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Building a complete ASX investment portfolio with three Vanguard ETFs
Starting out, I would go with a significant allocation to the Vanguard Australian Shares ETF mentioned above. This index fund is the most popular ETF on the ASX for good reason – it provides easy exposure to the largest 300 shares listed on the Australian share market.
That's everything from Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) to JB Hi-Fi Ltd (ASX: JBH) and Coles Group Ltd (ASX: COL).
The ASX has long delivered solid returns for investors, including a hefty stream of franked dividend income. The Vanguard Australian Shares ETF is a cheap and cheerful way of harnessing these returns.
This single ETF represents the best Australian business has to offer, and is worth a third of our overall portfolio.
Next up, I would direct a further third of our portfolio towards the Vanguard MSCI Index International Shares ETF (ASX: VGS).
Adding some international diversification
This ETF is huge in scope. It invests in more than 1,500 individual companies hailing from more than 20 advanced economies around the world. These include Canada, the United Kingdom, and France, as well as Singapore, Japan and Sweden.
But most of this ETF's holdings are US shares. The largest US companies, including Apple, Microsoft, Alphabet, Tesla and NVIDIA, dominate this fund. These are some of the best businesses in the world and give our portfolio some much-needed international diversification.
Our portfolio's final third would be well suited to the Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE), in my view.
The previous VGS ETF is great for international diversification. But it only concentrates on the advanced economies of the world. That leaves a huge gap that this VGE ETF can fill.
It also holds a massive number of individual companies – more than 5,700. These come from emerging markets like South Africa, Brazil, Saudi Arabia, Mexico, Greece, Egypt and Thailand.
Its largest allocations are to countries like China, India and Taiwan though, with names like Taiwan Semiconductor Manufacturing Company, Tencent, Alibaba and Petroleo Brasileiro coming in as the largest holdings.
Many of these markets and companies represent some of the highest growth potential in the world, making this ETF a great place to park our portfolio's final third. They also give our portfolio plenty of healthy currency and geographic diversification.
Foolish takeaway
I think this mix of three Vanguard ETFs makes for a complete, well-rounded and highly diversified ASX portfolio that is easy to look after, and appropriate for any investor today.
