Create a Comprehensive Investment Portfolio With Just 5 Vanguard ETFs and REIT Index Funds

When it comes to building wealth through passive investing, exchange-traded funds (ETFs) have revolutionized how individuals approach diversification. Rather than attempting to pick individual winners in the market, a simpler strategy using low-cost REIT index funds and other indexed products can help investors overcome the endless challenge of market timing. The beauty of this approach lies in its simplicity: by investing consistently in a diversified set of index funds and letting compound growth work its magic, you’re following one of the most proven paths to long-term financial success. Vanguard, as the pioneer that created the original index fund concept, continues to lead the industry with some of the most cost-effective and comprehensive fund offerings available. Remarkably, you can assemble a fully diversified portfolio that matches or exceeds the performance of most active investors using just five carefully selected Vanguard ETFs.

Start With U.S. Stock Market Exposure: Your Portfolio Foundation

Every well-constructed investment portfolio needs a solid foundation in domestic equities. The Vanguard Total Stock Market ETF (NYSEARCA: VTI) serves as the ideal starting point, with an expense ratio of just 0.04%—making it essentially free to own.

Rather than chasing individual stocks, VTI tracks the entire U.S. stock market through the CRSP US Total Market Index. This comprehensive approach gives you exposure to over 3,600 different securities, spanning from industry giants like Exxon (NYSE: XOM) and Johnson & Johnson (NYSE: JNJ) to small-cap companies you’ve likely never encountered. This one-fund solution eliminates the need to juggle multiple positions across different market segments. By owning everything at once, you achieve instant diversification while keeping costs minimal. Investors have recognized this advantage, consistently directing substantial capital into this index fund vehicle. The elegance of this approach is that you’re not trying to outsmart the market—you’re simply capturing all of it.

Expand Your Horizon: International Stock Index Funds

Most investors unconsciously favor their home market, a bias known as “home country preference.” However, a truly global portfolio requires meaningful exposure to international opportunities. The Vanguard Total International Stock ETF (NYSEARCA: VXUS) addresses this gap effectively.

VXUS functions as the international counterpart to VTI. The fund tracks the FTSE Global All Cap ex US Index, which encompasses approximately 98% of non-U.S. global markets across developed, emerging, and frontier regions. With nearly 6,000 holdings, VXUS provides comprehensive exposure to European, Pacific, and emerging market companies across the full market-capitalization spectrum. Much like its domestic equivalent, VXUS maintains an extremely competitive expense ratio of 0.11%, making international diversification genuinely affordable. Adding international stock index funds to your portfolio through a single ticker eliminates bias while maintaining cost efficiency.

Strengthen Your Defense: Bond Index Funds for Stability

While equities drive long-term returns, stocks introduce volatility that can test even disciplined investors’ resolve. Bond index funds provide the stability and portfolio cushioning that every investor needs, regardless of age or timeline.

The Vanguard Total Bond Market ETF (NYSEARCA: BND) gives you exposure to the investment-grade fixed income market—essentially bonds issued by companies and the U.S. government with strong credit profiles. With approximately 8,500 different bond holdings, BND delivers remarkable diversification while virtually eliminating individual issuer risk. The fund’s focus on intermediate-term bonds (five to ten-year maturities) strikes an optimal balance between yield generation and interest rate risk management. This positioning makes BND an excellent core holding for balanced portfolios. At just 0.05% in annual expenses, bond index funds provide both income and stability without excessive cost.

Go Global With Fixed Income: International Bond Index Funds

Just as international stock diversification matters, so too does exposure to global fixed income opportunities. Many investors remain oblivious to the substantial yield and diversification potential available in international bonds issued by governments and corporations worldwide.

The Vanguard Total International Bond ETF (NASDAQ: BNDX) simplifies access to non-U.S. investment-grade fixed income. This fund holds approximately 5,000 bonds issued by foreign governments, government agencies, corporations, and securitized entities—all denominated in currencies other than the U.S. dollar. The fund employs currency hedging, protecting investors from exchange rate fluctuations so you can focus purely on bond performance. By incorporating international bond index funds alongside domestic fixed income, you achieve true global diversification in your fixed income allocation while capturing additional yield opportunities that purely domestic portfolios miss.

Complete Your Portfolio With REIT Index Funds: The Inflation Protection Layer

To truly round out a comprehensive investment strategy, you need exposure to real assets that historically protect against inflation. This is where REIT index funds become invaluable to your overall asset allocation.

The Vanguard REIT Index ETF (NYSEARCA: VNQ) stands as the dominant player in real estate equity indexing. This fund offers exposure to real estate investment trusts—companies that own, operate, and manage income-producing properties. Historically, real estate has proven to be an effective hedge against inflation because rents typically move with interest rates and economic demand, while physical assets tend to preserve value during inflationary periods. The fund recently expanded its definition of “real estate” to include real estate management firms, specialized properties like data centers and timber assets, and real estate development companies. This evolution only increases the diversification benefits of holding REIT index funds. With an expense ratio of 0.12%, adding real estate exposure to your portfolio through this low-cost vehicle makes compelling financial sense.

Why This Five-ETF Strategy Works

The power of combining these five Vanguard ETFs lies in their complementary nature. You begin with comprehensive U.S. stock market exposure, expand internationally to capture global growth opportunities, stabilize your holdings with both domestic and international bonds, and add real assets through REIT index funds to protect against purchasing power erosion. Each component serves a specific purpose within a coherent investment framework.

The expense ratios across all five funds average less than 0.10%, meaning you’re paying minimal fees while capturing the full breadth of global financial markets. This combination of low cost, broad diversification, and passive implementation—rebalancing annually or semi-annually—has consistently positioned investors to outperform the vast majority of active money managers over multi-decade time horizons. By using REIT index funds alongside traditional stock and bond index funds, you’ve constructed a genuinely complete portfolio that requires minimal maintenance, minimal costs, and delivers maximum diversification benefits.