Exchange-Traded Funds (ETFs)

Evaluation Before Investment

Looking at Risk, the idea is that different financial products have different levels of risk. Cash in a bank is lower risk, shares in small companies carry a higher risk. Knowing the theory that the higher the risk the greater the reward, you should consider the level of risk you are happy to accept.

A large proportion of investors simply pick ‘medium’, but what should you be thinking about?

Timeframe

How long are you expecting to tie your money up for? A long horizon lets you ride out volatility. The shorter the timeframe, the lower your risk appetite should be.

Current Wealth and Income

How much of a financial cushion do you have, and what is your ability to earn and save more in the future? Sometimes this is referred to as ‘capacity for loss’.

Personal Circumstances

Consider your stage of life, and the financial obligations you have. No matter what your own attitude to risk is, do you have responsibilities towards others that mean you have to be cautious?

Emotional Tolerance

How would you feel if your portfolio lost money? This is important not only because no-one enjoys the stress of losing money, but also because an emotional response can cause you to make a rash decisions.

Having considered these factors, is investment in ETFs right for you? Look at our Managed ETFs for some ideas. 

Equity/Bond Split is Key

When you have a figure in mind, it can be used to gauge the portfolio mix that suits. Broadly, this boils down to the mixture between bond funds and equity funds. Bonds are seen as less volatile, paying out a fixed rate of interest while the price (and the income received from) equities is less predictable.

The allocation between stock ETFs and bond ETFs is the primary driver of risk and return.

Building an ETF Portfolio

Once you know your risk appetite, you can either:

Choose a ready-made portfolio (expert-managed, simple but limited choice and higher fees).

Build your own (full control, cheaper, but requires more effort.

*Note: None of the examples below should be taken as a recommendation for the fund. We have not researched them. They are given purely as examples or ETFs for you to research and assess independently.

Example Portfolios

These are practical examples of how investment portfolio could be built using ETFs. Nothing below should be taken as a recommendation or endorsement of the particular funds. They are provided as real world examples only and no research into the funds has been conducted beyond their stated aims.

(~30% Stocks / 70% Bonds)

Model Portfolio 1: Conservative Investor

This portfolio prioritises capital preservation and income, with a small equity allocation for modest growth.

Why this works: The portfolio is heavily weighted towards stable UK government bonds (IGLT). The equity portion is entirely global and hedged (IWDG) to remove stock and currency volatility. Gold (IGLG) provides a further layer of diversification away from traditional stocks and bonds.

Conservative Investor

IGLT

IWDG

IGLG

Cash

Instant Investments Factsheet

We are highlighting three Funds which are managed by Blackrock, one of the world’s largest asset management firms. The funds are what is called Funds of Funds. The idea is that this is simpler than making a large number of small investments yourself. The investment decisions within the fund are made by Blackrock.

MACV

Select the fund you want to invest in

The most defensive, meaning it holds a higher proportion of bonds to equities. While riskier than keeping money in cash, it gives some exposure to the potential of equity markets.

MAMR

iShares Moderate Portfolio UCITS ETF

A middle option, this fund should not be as volatile as the growth portfolio but is likely to move more than a fund focussed on bonds.

MAGR

iShares Growth Portfolio UCITS ETF

The most aggressive of the three with a higher proportion of equities. This means the price is likely to move up and down more as shares prices are typically more volatile than bond prices.

How to Get Started