The Best ETF Investing Strategies in 2023

There are many different approaches as far as investing into the stock market via ETFs is concerned. I can’t blame you for feeling overwhelmed, especially if you’re still at the start of your investment journey.

Six years ago, I felt the exact same, especially since so much of the English speaking content around investing in stocks is tailored towards US based investors, a lot of which isn’t that useful to us Europeans.

That’s why today I want to go over some of the most popular ETF portfolio strategies, from extremely simple to more complex. I’m hoping that this post helps you figure out which approach might work best for you.

I’m going to include the ticker symbols for any ETF I mention, so that you can easily find it using your favorite broker.

Speaking of that, if you’d like to support me and you’re looking for an excellent low-cost broker for your investments into stocks or ETFs, this one is my favorite.

How to find and compare ETFs

Before we take a look at the different portfolios, I want to give you the tools I often use for my own research to find and compare the best ETFs that are actually available to investors in Europe.

One of the most common questions I still get to this day is someone asking about a specific ETF they heard about on an American investment channel or blog and why they’re not able to buy it using their broker.

Well, because of EU regulations, we’re not able to trade US-based ETFs. But, this doesn’t mean we can’t invest into the same index containing the exact same stocks, we simply have to find an ETF that’s domiciled in Europe instead.

Just to give you a quick example – while you can’t buy the Vanguard S&P 500 ETF with the ticker VOO, you can still invest into the same index via the same provider (Vanguard) with the ticker symbol VUSA.

The only relevant difference is, this one is based in Ireland instead of the US and you can buy or sell it directly in EUR instead of USD, so you don’t need to waste any money converting your currency.

Now, one of my favorite tools to find the best ETFs and compare their performance is JustETF.

Here you’ll also be able to see each ETFs ISIN number at the top or the ticker symbol at the bottom (eg. the Vanguard S&P 500 I just mentioned), so that you can find it using your favorite brokerage account.

Another useful tool if you want to quickly find the largest ETFs by net asset value or sort by dividend yield is Interactive Broker’s GlobalAnalyst, just make sure you select Europe as a region and Euro as a currency beforehand to find ETFs you can buy.

You can then find a lot more information when searching for it within your Interactive Brokers account and hitting the research tab:

And if you enjoy testing a specific strategy, at least as far as data from the past is concerned, the third useful site I have to mention is Backtest by Curvo.

Here you can create a portfolio and see how it performed over a specific period. For example, did you know that a theoretical 10.000€ investment in the MSCI World index in December 1978 would have turned into 835.914€ by February 2023?

Or that a recurring investment of 1.000€ every month would have turned into 6.354.418€ over that same period?

That’s the power of compound interest over long time periods. It also helps to put things in perspective when the market is down, as the last 12 months have certainly not been easy.

ETF Investing Strategies

Alright, let’s now get to the different ETF Portfolios, from extremely simple to more complex.

Distributing vs. Accumulating ETFs

It’s up to you to choose between the distributing version of an ETF, so the version where you receive regular dividend distributions paid out to your account or the accumulating version, where the ETF itself automatically reinvests those for you into more shares of the stocks within the index.

If you’re not sure about which one to pick, this post of mine might help.

Today I will only mention ETFs that physically hold the stocks within the index, not synthetic ones that simply track the index performance via SWAP contracts, as those carry additional counterparty risk.

Portfolio 1: The 1-ETF Portfolio

Having said that, this brings me to Portfolio #1, the easy peasy 1-ETF portfolio covering the entire world, not just developed markets, but emerging markets like India and China as well.

There are two indexes that in my opinion are best suited for this strategy: The FTSE All-World and the MSCI ACWI index.

Among them, the FTSE All-World is a bit more diversified, covering 30% more stocks, 3.732 vs. 2882.

And it’s your only choice if you’re looking for a distributing ETF, for those of you that enjoy having dividends paid out to your account on a regular basis, which I won’t lie, can be quite motivating.

When looking at the best ETFs for a simple, global 1-ETF portfolio based on performance, total expense ratio and size, these are my picks:

• Vanguard FTSE All-World: Distributing (VWRL) or Accumulating (VWCE)
• iShares MSCI ACWI Accumulating (IUSQ)

They have been pretty close to each other in performance over the past 11 years:

Whichever ETF you end up choosing for this strategy, you’re ensuring that you’re invested into all of the best publicly listed companies from around the world based on their market cap, no matter if they come out of the US, Europe or India in a few years.

Basically what you’re doing is you’re letting the market itself decide over time how much is allocated in stocks from developed markets (right now that’s about 89,9%) and emerging markets (around 10,1% right now).

This for me, is the simplest way to invest into ETFs and I believe this is the strategy you’re the least likely to want to change in a few years, a decade or more.

Because the main thing you should keep in mind is that ETFs are long-term investments, you should have a time horizon of at least 5 years, ideally 10 years or more.

You don’t want to put yourself in a position where you’re constantly questioning your decision and flip-flopping from strategy to strategy. That would most likely not only cost you returns due to more trading fees and taxes, but your peace of mind as well.

What about the MSCI World or S&P 500 as an alternative?

Now you might be wondering – wait a second, what about the MSCI World? Well, MSCI World ETFs actually only contain developed markets, not the entire world:

This means you’re completely excluding stocks from major economies like China, India, Taiwan, Indonesia and Brazil from your investments.

If you’re doing that on purpose that is perfectly fine, you should simply be aware of how you’re investing!

This brings me to the two most popular alternatives to the global 1-ETF portfolio I just mentioned:

The first one is just investing in the MSCI World or FTSE Developed World index.

You’ll still be investing globally, but just into developed markets. Once again, the FTSE Developed World index is significantly broader, containing 2.199 stocks from 26 developed markets, compared to only 1.509 stocks from 23 developed markets in the MSCI World.

Still, they’ve been pretty close to each other performance-wise. These would be my ETF picks for this strategy:

• Vanguard FTSE Developed World Dis. (VEVE/VGVE) or Acc. (VHVE/VGVF)
• iShares Core MSCI World Acc. (IWDA)
• SPDR MSCI World Acc. (SPPW)
• HSBC MSCI World Dis. (WRD or H4ZJ)
• xTrackers MSCI World Dis. (XDWL)

The second alternative to the 1-ETF portfolio is another very popular index, the S&P 500, covering the top 500 large cap stocks in the United States of America.

It’s probably the one you’ll hear mentioned the most often if you consume finance content from American sources.

Some of you commenting under my videos on YouTube even argued that the rest of the world is highly correlated to the US market anyway, so why not just buy the S&P 500 directly?

You can certainly do that if you want, I’ll just tell you my own issue with this approach: By only buying the S&P 500 you’re concentrating your investment on stocks from a single country and placing a bet that these are going to do better than the rest of the world.

While that may have been the case over the past few decades on average, nobody knows what the future holds.

How confident are you that US stocks will keep outperforming long-term and that you won’t want to change your investment strategy in a few years if you see more innovation coming from other countries?

You should also know that US stocks already make up about 59-60% of the FTSE All-World and MSCI ACWI and 65-67% of the FTSE Developed World and MSCI World index respectively on a market cap basis.

That’s already a lot. So if the US keeps performing the best you’ll be seeing most of that reflected in globally diversified ETFs as well, while still ensuring that you don’t have any regrets if other regions end up with a higher performance long-term.

Again, I just wanted to make sure you understand exactly what you’re betting on. As long as you’re aware of that, that’s perfectly fine!

If that’s the case, here are the S&P 500 ETFs I would pick based on my research:

• Vanguard S&P 500 Dis. (VUSA) or Acc. (VUAA)
• iShares Core S&P 500 Dis. (IUSA) or Acc. (SXR8)

Portfolio 2: World in 2 ETFs

This finally brings me to portfolio #2. Now we’re adding a bit more complexity to our ETF investments.

Here you’re again investing into stocks from the entire world, but this time via 2 ETFs. One for developed markets and one for emerging markets.

This means, you have to make an active decision regarding your allocation to each of them and ideally, rebalance your portfolio to your target allocation on a regular basis.

For developed markets your best options are once again ETFs covering the FTSE Developed World or MSCI World, while for Emerging Markets you have the FTSE Emerging Markets and MSCI Emerging Markets index.

Here you could do a simple split based on market cap of 90% developed and 10% emerging, similar to how it is in the FTSE All-World right now or go even further, with an 80/20 or even 70/30 allocation.

Surprisingly, the 70/30 split has gotten quite popular in the German finance community.

The reason investors give for that approach is that Emerging Markets already account for 50% of global GDP, while stocks from Emerging Markets only make up 10,1% of a global index based on market cap. Thus, by giving them a weighting of 30%, you’re getting closer to their weight by GDP.

It’s perfectly fine if you wish to do that, but my issue with this thought process is that in my opinion you’re placing too much importance on where companies are based, which is only part of the story. For example, stocks in the S&P 500 generate 40% of their revenue in other countries, including emerging markets. With IT companies this number is even higher (58%).

So I’m not a big proponent of over-weighing stocks simply based on their country’s GDP, certainly not by a factor of 3x compared to their market cap.

I think my personal limit would be an 80/20 split between developed and emerging, but to each their own!

When choosing ETFs for this strategy, I would stick to one index provider, either FTSE or MSCI, so that you don’t have any countries overlapping in your portfolio. For example, South Korea and Poland are present in the FTSE Developed World, while they’re still classified as Emerging Markets by MSCI.

Thus, I would pick either these two:

• Vanguard FTSE Developed World Dis. (VEVE/VGVE) or Acc. (VHVE/VGVF)
• Vanguard FTSE Emerging Markets Dis. (VFEM) or Acc. (VFEA)

Or an MSCI World plus Emerging Markets ETF among these:

• iShares Core MSCI World Acc. (IWDA)
• SPDR MSCI World Acc. (SPPW)
• HSBC MSCI World Dis. (WRD or H4ZJ)
• xTrackers MSCI World Dis. (XDWL)
• iShares Core MSCI Emerging Markets IMI Dis. (IBC3) or Acc. (EMIM)

The iShares Emerging Markets IMI ETF I selected here even includes Small Cap stocks, adding a bit of extra diversification.

Portfolio 3: World including Small Cap

Next we have portfolio #3. What if you want to invest into smaller companies, also known as Small Cap stocks as well?

These are generally riskier and more volatile, but they have historically outperformed large and mid cap stocks over long time horizons, although there’s no guarantee that’s always going to be the case.

As it turns out, thee is actually a global ETF that covers the entire world including Small Cap stocks:

• SPDR MSCI ACWI IMI Acc. (SPYI)

My only issue with this ETF is that it’s relatively small with a fund size of 451 million euros and that while its parent index is very broad with 9.126 stocks, the ETF itself currently only holds 1.864, so about 20% of them (this index replication method is called optimized sampling).

It’s also a bit more expensive with a total expense ratio (TER) of 0,4% per year and it only exists in an accumulating version, in case you prefer distributing ETFs. Still, I think you could do a lot worse if you wanted a simple all-in-1 solution including Small Cap stocks.

As for my personal preference, I would simply add a 10-15% allocation in the MSCI World Small Cap index to a global ETF from portfolio #1 instead:

• 90% Vanguard FTSE All-World Dis. (VWRL) or Acc. (VWCE)
• 10% iShares MSCI World Small Cap Acc. (IUSN)

Portfolio 4: World with more European stocks

This brings me to portfolio #4, that’s for anyone looking to increase the percentage of European stocks in their portfolio, since Europe’s share by market cap in global ETFs has decreased a lot over the past decade and currently stands at only 17,2%.

One way to achieve that is by adding one of these 3 indexes to a global ETF:

• Stoxx Europe 600: Covering 600 large, mid and small cap stocks
• FTSE Developed Europe: More than 580 large and mid cap stocks
• MSCI Europe Small Cap: Over 980 European Small Cap stocks

The last option could be interesting if you were considering to add Small Cap stocks to your portfolio in the first place but you also wanted to increase how much you have in European companies.

With an 80/20 allocation to the FTSE All-World and a Europe ETF, you’d be able to reduce your exposure to the US from 58,8% to 47% and to basically double how much you have in European stocks from 17,2% to 33,8% based on their current market cap.

This percentage is of course not locked in, it changes over time based on how stocks from each country perform in the FTSE All-World.

I would pick one of these ETFs to add more European stocks to my portfolio:

• Lyxor Core STOXX Europe 600 Acc. (MEUD)
• iShares STOXX Europe 600 Dis. (EXSA)
• Vanguard FTSE Developed Europe Acc. (VWCG) or Dis. (VEUR)
• xTrackers MSCI Europe Small Cap Acc. (XXSC)

Portfolio 5: Dividend Income Portfolio

Now, what if you particularly value regular dividend payments from your investments in ETFs? And what if once a quarter, as is the case with most Vanguard ETFs is not often enough for you? This brings me to Portfolio #5, the dividend income portfolio.

Here’s the thing, most high dividend yield ETFs are complete garbage. What’s the point of a high dividend yield if the total performance (so the ETF share value plus paid out dividends) underperforms the market by a significant margin?

That’s why I’m not a fan of most of them, including the Vanguard FTSE All-World High Dividend Yield ETF.

Here’s how that one did compared to the default index from March 2008 to December 2022. It significantly underperformed over that period (3,92% compound annual growth rate vs. 8,87%). Keep in mind, this is including last year, where dividend stocks actually performed better.

As a result, I would still pick the distributing Vanguard FTSE All-World from portfolio #1 over the high dividend yield version as the first ETF and a global dividend focused ETF I actually do like, the Fidelity Global Quality Income. This one even managed to outperform the FTSE All-World ETF since 2017.

By combining these two, we’re receiving dividend distributions in 8 out of 12 months: In March, June, September and December from Vanguard and in February, May, August and November from Fidelity.

If I had to choose, I would go with an 80/20 split between the two, since the Global Quality Income ETF is still quite a bit smaller and more concentrated compared to the FTSE All-World:

• 80% Vanguard FTSE All-World Dis. (VWRL or VGWL)
• 20% Fidelity Global Quality Income Dis. (FGEQ)

Now, if you want to specifically add additional REITs or real estate companies over what’s already in the FTSE All-World index, one option that could fit in well with our Dividend Income Portfolio is the HSBC FTSE EPRA NAREIT Developed ETF:

As luck would have it, it pays out dividends in exactly the 4 months that were missing from the other two ETFs – January, April, July and October.

This index was actually neck and neck with the FTSE All-World since 2005, but hasn’t quite recovered from the Covid crash yet, most likely due to the restrictive monetary policy over the past 12 months.

It could be a good addition if you’re looking for more exposure to real estate, another source of dividends or betting on a turnaround in interest rates.

So here’s option #2 for the dividend income portfolio:

• 70% Vanguard FTSE All-World Dis. (VWRL or VGWL)
• 20% Fidelity Global Quality Income Dis. (FGEQ)
• 10% HSBC FTSE EPRA NAREIT Developed Dis. (HPRD)

Portfolio 6: Custom World Portfolio via 5 ETFs

Last but not least, we have portfolio #6, the most complex one by far. Here you’re again investing globally, but you have full control over how much you allocate to each region via 5 ETFs.

The advantage of this portfolio is that you’re very flexible in that you can always see and change how much of your money is invested in each region. The downside is obviously its complexity compared to a one- or two-ETF solution.

This right here could be a sample allocation to each, so you don’t over-complicate things:

• 50% Vanguard FTSE North America Acc. (VNRA) or Dis. (VNRT)
• 20% Vanguard FTSE Developed Europe Acc. (VWCG) or Dis. (VEUR)
• 10% Vanguard FTSE Emerging Markets Acc. (VFEA) or Dis. (VFEM)
• 10% Vanguard FTSE Developed Pacific ex Japan Acc. (VGEK) or Dis. (VAPX/VGEJ)
• 10% Vanguard FTSE Japan Acc. (VJPA) or Dis. (VJPN)

This completes the 6 ETF Portfolios I wanted to show you today!

If you’re looking for an excellent low-cost broker in Europe to get started with your ETF investment journey, my personal favorite is Interactive Brokers.

Meanwhile, here are some of the best alternatives including tutorials on how to buy ETFs using each broker.

What about Bonds?

Now you might be wondering, wait a second Angelo, what about bonds?

Personally, I’m not a fan of bonds, even though they finally started to pay more interest. I prefer having that part of my portfolio instantly accessible in cash and without fluctuations in value (€ government bonds were down -18,5% last year!).

As a result, I’m currently keeping my cash reserves with Trade Republic, where I’m getting 2% interest per year (paid out monthly) and secured by a deposit guarantee of 100.000€:

In addition to that, I already have 10-15% of my portfolio on different P2P lending platforms, where I’m willing to take more risk for significantly higher interest payments than what bonds have to offer.

The best ETF investing strategy?

As for which of the ETF investing strategies I mentioned is is right for you, you ultimately need to figure that out for yourself. Hopefully I was able to give you some ideas to start from.

Regarding my own investment journey, I actually started with a total of 6 ETFs in 2017 – one for each region (including Small Cap stocks) – before changing my strategy as I realized that I preferred a simpler and less time-intensive solution for my investments in the stock market.

That’s why my personal preference remains portfolio #1, the easy-peasy 1-ETF portfolio covering the entire world, using the accumulating Vanguard FTSE All-World ETF (VWCE). But that’s just me and there’s absolutely nothing wrong with following a different strategy!

Actually, let me know in the comments:

Which of these ETF portfolios would you pick if you had to choose?