How To Build The Perfect Vanguard Portfolio

Vanguard is one of the best providers of index funds and ETFs. So much so, that Vanguard seems to have built up a cult following.

Pick up any investment book, watch any YouTube video, or submerge yourself into any online investment article and more times than not, Vanguard will be touted as the go to place to build your wealth.

And to be fair, this is probably justified. We have always felt that Vanguard has the customers best interest at heart, which is extremely rare for a corporation.

Call us cynical but other corporations, no matter what industry they’re in, seem to pretend to care for the customer and then pull the rug out from under their feet.

In this article we’ll briefly look at why we think Vanguard funds and the Vanguard investment platform are great places to invest.

We’ll also consider some of the key areas where we think Vanguard are underdelivering and why you might want to go elsewhere for certain investing objectives.

And we’ll also suggest 6 portfolios built exclusively from Vanguard funds, to use as inspiration for your own portfolio.

You might find that it’s cheaper to buy Vanguard ETFs on a free trading platform like Freetrade, than on Vanguard’s own platform. Check out Freetrade’s welcome offer of a free stock worth up to £200 on the Money Unshackled Offers Page.

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Why Invest In Vanguard Funds?

Let’s first consider Vanguard’s funds and ETFs. Their fees are amongst the lowest in the industry and their funds some of the most popular – which means you should have no problem buying and selling, as they are what the industry call very liquid.

In the past we have referred to Vanguard as the Amazon of the index investing world.

When you shop at Amazon you know that you will get a good price. It may not always be the very best, but you can shop with confidence without having to do any price comparisons.

Vanguard is exactly the same. Across their entire range you will always get a competitively priced fund or ETF.

Not only that but in the UK, Vanguard has a very streamlined range, focussing on simplicity, which we feel are specifically targeted at the most important investment markets such as the whole-world and key geographical regions.

What Are The Problems With Vanguard Funds?

The simplicity of the range is a blessing for beginners who might otherwise drown in some of the choice offered by competing Fund and ETF providers.

However, for those a little more experienced, this smaller range really limits what you can invest in.

The most notable absences are a lack of precious metals, sector-based ETFs, currency hedged equity ETFs, synthetic ETFs, small-cap ETFs, and the absence of a dedicated global government bonds ETF.

That is quite a long list of omissions, but you don’t have to exclusively invest in Vanguard funds. You can easily invest primarily in Vanguard funds and then supplement them with investments from other fund providers.

The exception to this is if you invest via Vanguard’s own investment platform.

The Vanguard Investment Platform

When Vanguard launched its UK investor platform in 2017, at the time it was a game changer. They allowed investors to invest with platform fees of just 0.15% and no trading fees. For investors who were only interested in investing in a few Vanguard index funds and ETFs there was no better place to invest.

Since then, they have introduced Self Invested Personal Pensions, and now offer 4 account types in total: ISAs, Junior ISAs, General Accounts, and SIPPs.

Today, however, commission free trading apps are also providing some much-needed competition. Even if you are only interested in investing in Vanguard funds, in some cases it would be better to use a third-party platform.

Trading 212 and Freetrade both offer a wide range of Vanguard ETFs but with zero account fees, so might be more cost-effective ways to invest in Vanguard ETFs.

Freetrade do charge a flat ISA and SIPP account fee though so don’t forget to factor that in.

Strangely, Vanguard’s own platform doesn’t offer the full range of Vanguard funds, which is SO annoying!

For example, the FTSE All-World ETF (VWRL) is only available as a distributing ETF, but on third party platforms such as Interactive Investor you will have the option to choose the accumulation variety (VWRP) as well.

Portfolio Models

There’s lot of theory around building the perfect portfolio and the one we subscribe to is owning the entire world.

Vanguard clearly agree with this as their fund range is mostly broken down into regions, which makes building a global portfolio super easy.

Portfolio 1: Global Tracker

There’s a good argument that an investor’s biggest enemy is themselves. The vast majority of investors underperform because they can’t help but meddle.

They listen to the news, they buy into the fear mongering, they try and predict what will and won’t do well, and on and on the portfolio damage goes.

Instead of this doing all of this, it might be better to just pick one fund and leave it at that. Our favourite Vanguard funds for doing this are: the Vanguard FTSE All-World ETF (VWRL/VWRP); or Vanguard FTSE Global All Cap Index Fund.

The All-World ETF costs just 0.22% and covers over 3,500 stocks across the globe.

The US makes up the bulk of the fund with 56% of the allocation, Japan makes up 7.3%, China 5.3%, and the UK 4.1%.

Over the last 5 years the ETF has returned 94%, which is neck and neck with the benchmark. The ETF has not yet existed for 10 years, but the benchmark’s 10-year return is 133%.

This index and ETF tracks both large and mid-cap stocks and covers around 90% of the investable market capitalisation.

The Vanguard FTSE Global All Cap Index Fund is very similar but also includes small-cap stocks, which takes the stocks in the fund to over 6,800.

Although this sounds like a lot more stocks than the ETF contains, these will make up such a tiny allocation of the fund that they will only make a small difference to performance.

As it happens, over 5 years the benchmark return for the All-World ETF is 94.1% compared to 96.3% for the Global All Cap Index Fund.

Portfolio 2: Developed And Emerging Market Tracker

This is probably our favourite Vanguard portfolio. It takes all the good points from the previous portfolio and adds in a little more control and even lowers the fee. The ETFs to use are: Vanguard FTSE Developed World ETF (VEVE/ VHVG); and Vanguard FTSE Emerging Markets ETF (VFEM / VFEG).

The FTSE All-World index effectively contains both the FTSE Developed and the FTSE Emerging Indexes at about 88% and 12% respectively.

If you buy these ETFs in these allocations, you would in theory beat the FTSE All-World ETF because the combined weighted fee is cheaper.

The Developed World ETF costs just 0.12% and the Emerging Market ETF is 0.22%. Together that comes in at 0.132%.

However, we would choose to invest slightly more into the Emerging Markets – maybe taking the weighting from 12% to 20% – because we think the emerging markets will deliver stronger returns over the next few years. Doing this would change the total portfolio fee to 0.14%

Over the last 5 years both of these ETFs have performed similarly.

The Developed World ETF has returned 94.6% and the EM ETF has returned 97.1%.

The Developed World ETF is dominated by the US, followed by Japan and then the major European countries. The EM ETF is weighted heavily towards China and followed by large positions in Taiwan and India.

Portfolio 3: Regional ETFs

Another portfolio we like is one that’s built using individual regional-based ETFs. Something like:

  • S&P 500 ETF (VUSA)
  • FTSE Developed Europe ex UK ETF (VERX)
  • FTSE 100 ETF (VUKE)
  • FTSE Japan ETF (VJPN)
  • FTSE Developed Asia Pacific ex Japan ETF (VAPX)
  • FTSE Emerging Markets ETF (VFEM)

The fees for each ETF are dirt cheap. The beauty of this setup is you can put as much or as little as you like into each region. If you think Japan is cheap, buy more. If you think the US has silly valuations, buy less. You have so much control.

Portfolios 4 & 5: Ready-Made Portfolios

Vanguard has some wonderful funds of funds that are essentially one-stop-shops. They have built a range of low-cost, ready-made portfolios that will make your life a breeze.

The first set of ready-made portfolios is known as their LifeStrategy Range and each one costs just 0.22%. There are 5 different funds: LifeStrategy 20% Equity Fund, 40%, 60%, 80%, and 100%. The number indicates what percentage of the fund is in equity, with the remainder being in bonds.

Let’s look at LifeStrategy 60 as an example. Within the fund there are loads of other Vanguard funds. If you were to tally up all the bond funds in there it would add up to around 40%. The other 60% is in Vanguard equity funds.

One important thing to point out with this fund range is the UK bias. The funds are built roughly to follow global market capitalisation weightings but are distorted in favour of the UK.

We personally don’t care for this, but many UK investors do want some UK home bias.

The next set of ready-made funds are the Vanguard Target Retirement Funds, which all cost 0.24%. There’s a whole bunch of these and you choose the one with the name closest to your retirement date. For example, say you were planning to retire in 20 years’ time you would choose the Target Retirement 2040 Fund.

A traditional investing path is to de-risk your portfolio as you age. These funds achieve this by gradually moving your invested money away from equities and towards bonds – Vanguard does everything for you.

The Target Retirement 2040 Fund is still 19 years from its target date, so at this point it holds 74% equity and 26% bonds.

In exactly the same way as the LifeStrategy funds, the Target Retirement Funds are also weighted with UK bias.

Portfolio 6: ESG Fund

This is for the investors that want awesome returns but wish to do it responsibly. This portfolio consists of a single global ETF that tracks the FTSE Global All Cap Choice Index.

The Vanguard ESG Global All Cap ETF (V3AM) has literally just launched at the end of March 2021 and costs just 0.24%.

There is little info about the ETF listed on Vanguard’s own site – presumably because it’s so new.

But taking a look at the index factsheet tells us everything we need to know.  The index contains around 7,500 stocks with big allocations to all the usual countries in a global index.

The index applies rules-based criteria to screen out non-renewable energy companies, makers of weapons, and vice products such as alcohol, gambling, and tobacco, amongst other things. Companies are also excluded based on Controversial Conduct.

Its 5-year return is 110.5% – even beating the 99.5% from the FTSE Global All Cap.


Other than the ready-made portfolios you may have noticed that we have neglected to include any bonds. That’s because we don’t think young people need them in their portfolios, and also because we feel that bonds are not good investments right now.

Bond prices are linked to interest rates, which are already at or below zero globally, and we can’t imagine there being any major drop in interest rates that would cause bond prices to go up. So, it seems that investing in bonds now would be the worst time to invest in this asset class.

Having said that, there’s nothing stopping you from adding some bonds to any of these portfolios. If you’re adding bonds in order to maximise portfolio stability, then we would stick to government bonds and avoid corporate bonds.

Corporate bonds tend to move in a similar way to equities and so offer little protection in a downturn. Government bonds, however, tend to be a good hedge against equities.

Unfortunately, Vanguard doesn’t offer a dedicated global government bond ETF. But they do have these more targeted ETFs which could be used instead:

  • USD Treasury Bond UCITS ETF (VUTY)
  • K. Gilt UCITS ETF (VGOV)
  • EUR Eurozone Government Bond UCITS ETF (VETY)
  • USD Emerging Markets Government Bond UCITS ETF (VEMT)

Similarly, you might want to tack on other ETFs to increase or decrease your exposure to certain areas.

For example, you could also invest in the Vanguard FTSE 250 ETF if you wanted more exposure to UK mid-cap equities.

Do Vanguard products make up the bulk of your portfolio? If not, what does? Join the conversation in the comments below.


Featured image credit: Piotr Swat/

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