Easy Way to Diversify Your Portfolio with Low Expenses

I wanted to provide options for building a portfolio as easy as possible and show some updated and modern options to add to a very popular and well accepted existing framework.

🧠 A Classic Baseline: The Bogleheads 3-Fund Portfolio

One of the most widely recommended strategies for simplicity and effectiveness is the Bogleheads 3-Fund Portfolio. It uses just three funds to provide broad, global diversification with minimal expenses:

Fund Type	Example ETF	Purpose
U.S. Total Stock Market	VTI – Vanguard Total Stock Market ETF	Covers entire U.S. equity market
International Stocks	VXUS – Vanguard Total International Stock ETF	Exposure to non-U.S. developed & emerging markets
U.S. Bonds	BND – Vanguard Total Bond Market ETF	Core fixed income for stability

This strategy is simple, low-maintenance, and very cost-effective — with expense ratios under 0.05% for all three components.

🧩 Typical allocations vary by risk tolerance (e.g., 60/30/10 or 40/20/40 for stocks/international/bonds).

More details: Bogleheads Wiki on 3-Fund Portfolio

🆚 Why Go Beyond It?

While the 3-fund portfolio is a great starting point, it lacks exposure to real estate, gold, crypto, or private equity — all of which have historically offered diversification and potential return benefits.

That’s why the goal of this blog is to offer a broader ETF-based approach for those interested in low-cost access to more asset classes without needing special accreditation, active management, or high fees.

Below are options to build a diversified portfolio with minimal hassle and low expenses. I would only recommend the stock and bond ETF/mutual funds for now until I get more educated on the others. The stock ETFs and bonds are widely known and discussed widely with “Bogleheads” for which you can “set and forget.”

The other ETFs and funds include assets which may require more research/monitoring and don’t fall into the set-and-forget strategy. Please see my disclaimer at the end.

For additional ETFs not mentioned here (including higher growth and risk), check out this related post:

Investing Made Easy with Low Expenses

Asset Class	Aggregate Class	Example ETF / Fund	Expense Ratio	Comments
U.S. Stocks (Total)	Stocks	VTI – Vanguard Total Stock Market ETF	0.03%	Total U.S. stock market, extremely low cost
U.S. Stocks (Total)	Stocks	FZROX – Fidelity ZERO Total Market Index Fund	0.00% (fund)	No-fee mutual fund; only available at Fidelity
U.S. Stocks (S&P 500)	Stocks	VOO – Vanguard S&P 500 ETF	0.03%	Tracks the S&P 500; low cost and very popular
U.S. Stocks (S&P 500)	Stocks	FXAIX – Fidelity 500 Index Fund	0.015% (fund)	Fidelity’s ultra-low-cost S&P 500 mutual fund
International Stocks	Stocks	VXUS – Vanguard Total International Stock ETF	0.07%	Broad global exposure outside the U.S.
International Stocks	Stocks	FZILX – Fidelity ZERO International Index Fund	0.00% (fund)	No-fee international mutual fund; Fidelity-exclusive
Bonds (Total Market)	Bonds	BND – Vanguard Total Bond Market ETF	0.03%	Broad bond market exposure
Bonds (Total Market)	Bonds	FBND – Fidelity Total Bond ETF	0.25%	Fidelity’s actively managed bond ETF
TIPS (Inflation Bonds)	Bonds	TIP – iShares TIPS Bond ETF	0.19%	Inflation hedge
TIPS (Fidelity)	Bonds	FIPDX – Fidelity Inflation-Protected Bond Index Fund	0.05% (fund)	Low-cost inflation-linked bond fund
Gold	Alternatives	IAU – iShares Gold Trust	0.25%	Gold ETF with lower fees than GLD
Bitcoin (Spot)	Alternatives	IBIT – iShares Bitcoin Trust	0.25%	Spot Bitcoin ETF from iShares
Bitcoin (Spot)	Alternatives	FBTC – Fidelity Wise Origin Bitcoin Fund	0.25%	Fidelity’s Bitcoin ETF
Real Estate (REITs)	Real Estate	VNQ – Vanguard Real Estate ETF	0.12%	U.S. REITs exposure from Vanguard
Real Estate (REITs)	Real Estate	FREL – Fidelity MSCI Real Estate Index ETF	0.08%	Fidelity’s low-cost REIT index ETF
Real Estate (REITs)	Real Estate	SCHH – Schwab U.S. REIT ETF	0.07%	Schwab’s REIT ETF, slightly different sector weighting than VNQ
Real Estate (Global)	Real Estate	REET – iShares Global REIT ETF	0.14%	Global REIT exposure
Broad Alternatives	Alternatives	ALT – Global X Alternative ETF	0.50%	Hedge-fund-like diversified alt strategy
Private Equity (proxy)	Alternatives	PSP – Invesco Listed Private Equity ETF	1.49%	Publicly listed PE firms; imperfect but accessible

Drawbacks of Using Only ETFs and Mutual Funds for Alternatives, Real Estate & Private Equity Exposure

While building a diversified portfolio using ETFs and mutual funds is a practical and low-cost approach, it’s important to understand some limitations of this strategy—especially when it comes to alternatives, real estate, and private equity:

Limited Return Potential Compared to Direct Investments
ETFs and mutual funds that track broad indices or hold publicly traded companies tend to deliver returns close to market averages. For example:
- REIT ETFs may not capture the full income and appreciation potential of direct real estate ownership or specialized real estate funds.
- Listed private equity ETFs (e.g., PSP) primarily invest in publicly traded private equity firms, missing the illiquidity premium and active management returns typical of direct private equity deals.
- Broad alternative ETFs provide diversified exposure but generally underperform specialized, actively managed hedge funds or alternative strategies.
Lack of Illiquidity Premium and Manager Skill
Direct investments in private equity, real estate, or hedge funds often require capital lock-up and rely on skilled active management, which can add significant value.
ETFs trade daily and maintain liquidity, which inherently limits their ability to capture illiquidity premiums and manager alpha.
Higher Fees on Some Alternative ETFs
Some alternative ETFs and listed private equity ETFs have relatively high expense ratios (often >1%), which can erode returns over time compared to low-cost index funds or direct investments.
Tax Efficiency and Structural Limitations
Direct alternatives can offer tax advantages, including:
- Carried interest treatment in private equity
- Depreciation and cost recovery benefits in real estate
- Capital gains deferral via fund structures
  ETFs usually lack these tax benefits due to their transparent and liquid structure.
Reduced Customization and Control
ETFs limit investor control over specific holdings, timing, and strategy implementation, unlike direct investments or private funds where investors can negotiate terms and select deals.
Potential Overlap and Correlation Risks
Some ETFs may have overlapping holdings, such as private equity firms included in both equity and private equity ETFs, potentially reducing diversification effectiveness.

Summary

ETFs and mutual funds offer an accessible, liquid, and cost-effective way to gain broad exposure to many asset classes. For investors with smaller portfolios or limited access, they are often the best choice to start building diversification.

However, for those seeking to maximize returns and optimize tax efficiency—particularly at higher wealth levels—direct investments or specialized alternative funds may provide additional benefits through illiquidity premiums, active management, and tax advantages.

As wealth and experience grow, gradually integrating these more complex investments alongside ETFs may help build a more resilient and higher-performing portfolio over time.

Disclaimer I have not thoroughly researched all of the funds and assets here and don’t necessarily recommend buying all of these different options. My preliminary assessment is that the ETFs for private equity and alternatives may not be the best choices due to the low returns I’m seeing, though they do have the benefit of very high dividends (~8%). I’m not against investing in gold and crypto for diversification, but please be aware of the risks.