Brief Summary
This video outlines a six-fund portfolio designed to mirror the Vanguard VWRL ETF but with lower fees. The portfolio includes ETFs covering the S&P 500, UK's FTSE 100, Europe (excluding UK), Japan, Asia-Pacific (excluding Japan), and emerging markets. The presenter discusses the specific weightings and ongoing charges for each ETF, highlighting the overall cost savings and potential outperformance compared to VWRL. The importance of low fees and the power of compounding are emphasised, with a demonstration of how small differences in fees can result in substantial savings over long investment horizons.
- Replicates VWRL with lower fees
- Uses six different ETFs for diversification
- Highlights the importance of low fees and compounding
Introduction
The presenter introduces a six-fund portfolio designed to closely replicate the Vanguard VWRL ETF, but with significantly lower fees. This approach is suitable for those seeking global diversification while closely monitoring investment costs. The presenter prefers this method as it allows for more control over investment decisions and the ability to tailor weightings towards specific regions or high-dividend opportunities. The goal is to maintain a simple, passive, ETF-based investment strategy while minimising fees.
Replicating VWRL with Six ETFs
The presenter details the six ETFs used to build the VWRL replication portfolio. The first one is VUSA, Vanguard's S&P 500 ETF, with a target weighting of 62% and an ongoing charge fee of 0.07%. Next is VUK, the FTSE 100 ETF, with a 9% allocation due to home bias and high dividend payments; its ongoing charge fee is 0.09%. VERX, the Vanguard Europe ex-UK ETF, has an 8% weighting and a 0.1% ongoing charge fee. The Vanguard Japan ETF is allocated 7% with a 0.15% ongoing charge fee. Vanguard's Asia-Pacific ex-Japan ETF has a 4% weighting and a 0.15% ongoing charge fee. Lastly, the Vanguard Emerging Market Fund is weighted at 10% with an ongoing charge fee of 0.22%.
Cost Savings Comparison
The presenter emphasises that while the portfolio mirrors VWRL's geographical allocations, it allows for slight overexposure to specific regions like the UK. VWRL's ongoing charge fee is 0.22%, whereas the presenter's portfolio has a weighted ongoing charge fee of just 0.098%, saving 0.122% annually. This difference in fees can accumulate significantly over time, making the six-fund portfolio a more cost-effective option.
Long-Term Impact of Fee Differences
The presenter illustrates the long-term impact of the fee difference using a £30,000 initial investment with a 7% annual gross return. After 10 years, the presenter's portfolio would be worth approximately £58,478 compared to VWRL's £57,812. After 20 years, the difference grows to £2,582, with the presenter's portfolio valued at £113,991. By 30 years, the gap widens to £7,507, and after 40 years, the presenter's portfolio is worth £19,400 more than VWRL. This demonstrates the significant impact of compounding and the importance of minimising fees.
Performance and Dividends
The presenter notes that the six-fund portfolio has historically outperformed VWRL, with an annualized rate of return of 12.25% over the last 5 years compared to VWRL's 11.79%. Additionally, the six-fund portfolio provides a slightly higher dividend yield of 1.9705% compared to VWRL's 1.91%. These factors, combined with lower fees, make the six-fund approach more appealing.
Conclusion
The presenter concludes by highlighting the benefits of passive ETF investing, which include lower costs and a higher chance of achieving better outcomes over time. The presenter shares a link to the portfolio on Trading 212, but stresses the importance of doing your own research before investing. The key takeaway is that low fees compound into real cash over time, making a simple, boring investment approach highly effective.
