Building an ETF portfolio in Australia does not require complex strategy. The most effective long-term portfolios are often simple — 1 to 3 ETFs covering Australian shares, international shares, and optionally bonds. This article presents sample portfolio constructions at different levels of complexity.
Principles of ETF Portfolio Construction
Before looking at examples, the core principles:
- Diversification — spread risk across many companies, sectors, and geographies
- Low cost — minimise MER drag on returns over time
- Consistency — invest regularly regardless of market conditions
- Simplicity — a plan you can stick to is better than an optimal plan you abandon
- Tax efficiency — consider CGT, franking credits, and super vs personal ownership
Portfolio 1 — The 1-ETF Portfolio (Simplest)
For: Beginners who want instant global diversification with no rebalancing decisions.
| ETF | Allocation | MER | Description |
|---|---|---|---|
| DHHF | 100% | 0.19% | Global shares across 50+ countries, 8,000+ companies |
Or substitute VDHG (0.27%, 90/10 shares/bonds) if you prefer Vanguard or want a bonds component.
Pros: Maximum simplicity. No rebalancing required. Every dollar automatically invested globally.
Cons: Slightly higher MER than a DIY multi-ETF portfolio. Less control over allocation.
Portfolio 2 — The Classic 2-ETF Portfolio
For: Investors who want low cost, control over Australian vs international allocation, and minimal complexity.
| ETF | Allocation | MER | Description |
|---|---|---|---|
| VAS | 37% | 0.07% | Australian shares (S&P/ASX 300) |
| VGS | 63% | 0.18% | International developed market shares (MSCI World ex-Aus) |
Blended MER: ~0.14% | Annual cost on $100,000: ~$140
The 37% Australian / 63% international split broadly mirrors a global market-cap weighted portfolio with a modest home country bias.
Alternative options:
- Replace VAS with A200 (0.04%) for slightly lower Australian share cost
- Replace VGS with BGBL (0.08%) for meaningfully lower international cost (blended MER drops to ~0.07%)
- Add VGE (~5–12% allocation within international) to add emerging market exposure
Pros: Lower MER than all-in-one ETFs. Control over home country allocation. Tax-efficient rebalancing.
Cons: Requires periodic rebalancing (once or twice per year to maintain target weights). Two separate buy transactions per contribution.
Portfolio 3 — 3-ETF Portfolio with Bonds
For: Investors wanting some defensive fixed income allocation, particularly those 5–10 years from retirement.
| ETF | Allocation | MER | Description |
|---|---|---|---|
| VAS | 33% | 0.07% | Australian shares |
| VGS | 57% | 0.18% | International shares |
| VAF | 10% | 0.20% | Australian bonds |
Blended MER: ~0.14% | Annual cost on $100,000: ~$140
Alternative defensive assets: Replace VAF with AAA (BetaShares High Interest Cash ETF, 0.18%) for near-zero duration risk.
Pros: Diversified across shares and bonds. Lower volatility than 100% shares. Monthly bond income (VAF distributes monthly).
Cons: Three buys per contribution. Requires rebalancing.
Portfolio 4 — Income-Focused Portfolio
For: Investors seeking regular income (near-retirement or in retirement), prioritising distributions over capital growth.
| ETF | Allocation | MER | Description |
|---|---|---|---|
| VAS | 30% | 0.07% | Australian shares (franked dividends) |
| VHY | 25% | 0.25% | High-yield Australian shares (higher franked yield) |
| VGS | 20% | 0.18% | International shares (growth) |
| VAF | 15% | 0.20% | Australian bonds (monthly interest) |
| VACF | 10% | 0.20% | Corporate bonds (higher yield than VAF) |
Blended MER: ~0.16%
This portfolio emphasises income (franked dividends from VAS/VHY, monthly interest from VAF/VACF) while maintaining some international growth exposure through VGS.
Note: Income portfolios sacrifice some long-term growth potential — VHY’s higher dividend focus means different sector weighting and typically lower capital growth than VAS. Income needs, tax situation, and time horizon significantly affect the appropriate balance.
Portfolio 5 — ESG-Conscious Portfolio
For: Investors who want ethical screening without sacrificing low cost.
| ETF | Allocation | MER | Description |
|---|---|---|---|
| VESG | 40% | 0.16% | Australian shares (ESG screened) |
| VETH | 60% | 0.20% | International shares (ESG screened) |
Blended MER: ~0.18%
Vanguard’s VESG and VETH are the cheapest ESG options on the ASX. This portfolio mirrors the structure of the classic VAS + VGS combination but with ESG screening applied.
Rebalancing — How Often?
Most ETF investors rebalance annually or semi-annually — selling the overperforming allocation and buying the underperforming to return to target weights. Common approaches:
- Contribution rebalancing: When adding new money, direct it to whichever asset class has fallen below its target allocation (avoids selling and CGT events)
- Annual rebalancing: Once a year, review allocations and rebalance if any position has drifted more than 5% from target
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Frequently Asked Questions
How do I decide how much to put in Australian vs international ETFs? A commonly discussed starting point is roughly 30–40% Australian and 60–70% international — reflecting Australia’s approximate share of global market capitalisation (2%) plus a home country bias many Australian investors prefer. There is no universally correct allocation. Factors include your tax situation (franking credits favour Australian shares), your income (Australian shares pay higher dividends), and your preference for currency exposure.
How many ETFs is too many? Diminishing returns set in quickly with ETF diversification. A portfolio of VAS + VGS already holds approximately 1,800 underlying securities across 23 countries. Adding a third ETF (emerging markets, bonds) adds meaningful diversification. Beyond 3–4 ETFs, additional complexity rarely adds proportional benefit for most retail investors.
Can I change my ETF portfolio later? Yes — but changing triggers CGT events on accumulated gains. Many investors find it easier to redirect new contributions to a different ETF rather than selling existing holdings. Over time, this can meaningfully shift your portfolio’s weighting without triggering tax.
This article provides general financial information only. Sample portfolios are illustrative examples, not personalised recommendations. Past performance is not a reliable indicator of future performance. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.