ETF v praxi
How to build a 2–4 ETF portfolio: a practical guide
Key takeaways
- Portfolios of 2–4 ETFs are repeatedly confirmed by research to be comparable in performance to more complex alternatives — added complexity does not lead to better results.
- The core (60–100% of the portfolio) is a broad, cheap fund — typically IWDA (developed markets) or an All-World ETF covering the entire world.
- Satellites (0–40%) add targeted exposure to emerging markets, dividends or a specific theme — but only if you understand them and can justify the inclusion.
- Weight selection must be based on investment horizon, risk tolerance and life situation — not on past fund returns.
- Regular rebalancing (once a year is enough) keeps weights close to the plan and systematically forces you to buy what has fallen.
Step 1: Choose your core
The core is the foundation — it should make up at least 60% of the portfolio. The criteria are simple: low TER, high liquidity, physical replication, Irish domicile. Three most common choices:
- IWDA — MSCI World, 23 developed countries, no emerging markets. The cheapest of the three.
- EQQQ — NASDAQ-100, US tech, historically higher returns but also higher volatility. More of a satellite than a core.
- All-World ETF (e.g. Vanguard's VWCE) — combines developed and emerging markets in one fund, the simplest option.
For a beginner, IWDA or an All-World ETF is the best starting point. More in the article what is an ETF.
Step 2: Decide on emerging markets
If you choose IWDA, you are missing emerging markets (China, India, Brazil). You have three options: ignore them, add EIMI at 10–15%, or switch to an All-World fund. A typical IWDA + EIMI portfolio looks like: 85% IWDA + 15% EIMI.
Step 3: Satellites — only if you know why
Satellite positions (thematic ETFs, dividend funds, regional exposure) can have a place in a portfolio — but only if:
- you understand what they add and what risk they bring,
- their weight is set in advance (typically 5–20%),
- you won't change it every year based on what is rising.
Examples of satellites: SMH (semiconductors), VHYL (dividends), EQQQ (tech-heavy).
Step 4: Set weights and rebalance
Weights must be based on your risk tolerance and horizon — not on past returns. Write them down on paper or in a spreadsheet. Once a year check whether the portfolio has drifted from the plan and, if so, rebalance — ideally through purchases of the underweighted position rather than selling.
Sample combinations
Two ETFs: 85% IWDA + 15% EIMI. Three ETFs: 70% IWDA + 15% EIMI + 15% VHYL (dividend component). Four ETFs: 65% IWDA + 15% EIMI + 10% VHYL + 10% SMH (thematic satellite). An overview of ETFs and their parameters is on the ETF page.
FAQ
How many ETFs is the ideal number for a portfolio?
For most investors 1–3 ETFs are perfectly sufficient. Four ETFs are the upper sensible limit for a retail investor. More ETFs bring more complexity when rebalancing and a higher risk of overlaps — without a corresponding improvement in returns.
Do I need to have emerging markets?
No, it is not obligatory. IWDA on its own is a solid global core. Emerging markets add geographic diversification and exposure to fast-growing economies, but at the cost of higher risk. It is a personal decision.
How do I set the weights between core and satellite?
A simple rule: a satellite should not have a higher weight than you can psychologically withstand at a 50% decline of that position. If the thought of such a decline stresses you, reduce the weight or don't include the satellite at all.
What is rebalancing and how often should I do it?
Rebalancing is returning the portfolio to its planned weights. Once a year is enough for a long-term investor. The simplest approach: direct new investments into underweighted funds, avoid sales (tax implications).