The Vanguard ETF Portfolio That Could Replace a Financial Advisor

For a lot of people, hiring a financial advisor can make sense. If the financial markets aren't your specialty and you feel you can truly benefit from some guidance, working with a financial advisor can be valuable, even at the cost of 1% of assets annually. A financial advisor can be especially helpful if you have a more complex situation that requires tax advice or estate planning.

But a financial advisor might not be necessary. If you're willing to do a little legwork and a little research, you can actually save yourself a lot of time and money.

Advisors possess no special ability to outperform the market

In many cases, an advisor is going to put you in a fairly plain vanilla mix of investments. You'll almost certainly get an S&P 500 fund or some mix of large-cap stocks. You may have some international or smaller company stocks or funds. Maybe some bonds or even crypto. They may even put you in a lot of different investments to give the impression of diversification or some added value.

Most of the time, however, an advisor isn't going to create a portfolio for you that you can't replicate yourself with a few low-cost ETFs.

By focusing on keeping expenses as low as possible, investing in a few broad asset classes, and maintaining a long-term, buy-and-hold perspective, you can keep the fees you'd pay an advisor for yourself and possibly generate even better performance.

If you're interested in becoming a do-it-yourselfer, here's a portfolio consisting of just three Vanguard ETFs that can get you on the way to long-term investing success.

The "advisor replacement" portfolio

While there are any number of asset classes you could include to create broad diversification, you can build a core portfolio with just stocks and bonds. Down the road, you can add around the edges, but this will be the foundation that does most of the work.

The Vanguard Total Stock Market ETF (VTI +0.16%) offers a portfolio of roughly 75% U.S. large-cap and 25% U.S. mid- and small-cap stocks. A lot of folks would use an S&P 500 fund, such as the Vanguard S&P 500 ETF (VOO +0.11%), for U.S. stock exposure. That's another acceptable way to go, but I prefer to include smaller companies to get more complete exposure to the U.S. stock market.

The Vanguard Total International Stock ETF (VXUS 0.68%) does essentially the same thing but with both developed and emerging market foreign stocks. These haven't necessarily been popular because U.S. stocks have delivered far better performance. But their comeback over the past year or so demonstrates their value as part of a long-term equity portfolio.

The Vanguard Total Bond Market ETF (BND +0.22%) provides exposure to U.S. Treasuries, investment-grade corporate bonds, and mortgage-backed securities. This is designed to help offset some of the higher risks that come with stocks and provide an important income component as well.

An asset allocation featuring these three ETFs might look something like 60% Vanguard Total Stock Market ETF, 30% Vanguard Total International Stock ETF, and 10% Vanguard Total Bond Market ETF. Your personal allocation, of course, depends on your specific circumstances and risk tolerance.

The easiest way to enhance portfolio returns is to keep expenses and fees as low as possible. Ditching the financial advisor and creating an ultra-low-fee portfolio of ETFs yourself is the way to accomplish that.