1 ETF for Life to Get Rich? It’s Not One You’d Guess…

Is there one single ETF you can hold forever to get rich and save for retirement? Yes, and it's probably not one you would guess…

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So I've referenced the famous Bogleheads 3 Fund Portfolio many times in various blog posts on this site, and for good reason – it's a simple, low-cost, well-diversified portfolio suitable for beginners and retirees alike. But can we get even simpler and use one single ETF?

You might be thinking of funds like VOO for the S&P 500, VTI for the total US stock market, or VT for the total world stock market. And while these would certainly be good candidates, none of them is the fund I want to talk about here.

Those are also 100% stocks. And that's not a terrible idea on paper. But a hill I'll die on is that most investors severely overestimate their tolerance for risk and are likely better suited with a more diversified portfolio that at least somewhat lowers volatility and risk. The best portfolio is the one you can stick with during tough times, and it's probably not 100% stocks.

Moreover, while it doesn't sound too exciting, I'm a fan of asset class diversification for the simple reason that single assets can have extended periods of a decade or more of being completely flat. Would you have been thrilled about U.S. stocks in 2010 after they were flat after the previous decade? Or would you have stuck with 100% stocks after bonds beat them for the 2 decade period of 2000-2019?

Stocks are the usual go-to driver of the portfolio's returns, and bonds are the usual go-to diversifier to hold alongside stocks, because those two assets tend to be reliably uncorrelated, meaning stocks and bonds usually drop at different times. Unlike something like managed futures, bonds are also pretty easy for most investors to get a surface level understanding of. They're essentially a loan to the issuer for which you're paid regular interest. I think investors should always understand what they're buying and why they're buying it.

Another advanced topic that's likely unsuitable for novices is leverage. While a modest amount of it may be useful in a multi-asset framework, particularly for young investors, it also invariably introduces more risk and complexity to the portfolio, so a blanket recommendation to take on more debt, more risk, and higher fees is not one I can comfortably make as a one-size-fits-most idea for a retirement portfolio.

I've also gone into great detail elsewhere about how single country risk in stocks is idiosyncratic, and that it's probably a prudent idea to diversify globally in stocks. In short, diversification across styles, cap sizes, geographies, and asset classes tends to be the only “free lunch” in investing, again reducing the volatility and risk of the portfolio so that you can sleep easier at night and know your money is going to be there when you need it at retirement.

So my ideal single ETF to hold forever is simple, has a low fee for its exposure, and contains global stocks and bonds. Notice how these considerations tick those same Boglehead boxes. Now let's talk about the ratio of those stocks and bonds, called asset allocation.

60% stocks and 40% bonds, written as 60/40, is thought to be a good balance of risk and expected return, and is a popular allocation for those entering retirement. 100% stocks that I hinted at earlier, written as 100/0, is often only suggested for young investors with a long time horizon and a high tolerance for risk. A one-size-fits-most middle ground between those two would be 80/20 – 80% stocks and 20% bonds, suitable for both the young investor and the retiree, which historically had 20% lower volatility and risk compared to 100% stocks.

Let's talk about performance. Such an allocation has returned about 9% annualized historically over roughly the past century. That means a 20-year-old starting with $10,000 and investing $500/mo. over 40 years would have entered retirement at age 60 with $2.7 million.

So is there a single ETF that has 80% global stocks and 20% bonds at a reasonable cost? Yes! It's AOA from iShares, the iShares Core Aggressive Allocation ETF. I wrote a brief blog post on it previously here.

AOA basically looks like this:

These allocations actually have an index, called the S&P Target Risk Aggressive Index.

AOA costs 0.15%, which I think is reasonable for the simplicity and diversification it provides. Clearly many others agree, as AOA boasts nearly $2 billion in assets.

The simplicity of a one-fund portfolio can be extremely valuable for the index investor who wants to be completely hands off. You don't have to worry about choosing investments and you don't even need to do any rebalancing because the fund does it for you.

Going with one single fund massively decreases the mental and logistical effort required in portfolio management, and more importantly, mitigates the investor's own behavioral biases like recency bias, performance chasing, and loss aversion. As a result, it is actually well documented that investors who hold balanced allocation funds like this tend to outperform investors who try to manage everything themselves.

For all these reasons, a fund like AOA even gets the stamp of approval from staunch Bogleheads despite not being a Vanguard product.

The inherent US bias of AOA should make it more attractive to US investors, but you may still feel uneasy about international stocks. If so, click this video here where I explain why international diversification in equities is probably a prudent idea.

AOA should be available at any major broker. My choice is M1 Finance. The online broker has zero transaction fees and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.

What's your one fund to hold forever? Let me know in the comments.

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Disclosures:  I am long VOO in my own portfolio.

Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.