Find the Right Funds to Build a Great Portfolio

Beginner, Chart Talk, Theory

When looking for opportunities to make new connections, there’s something to be said for looking like you know what you’re doing. One time when I was browsing the produce section of the local grocery store for a few peaches to add to the basket, a young kid sheepishly approached and asked for some friendly advice.

“Could you please explain how to find a good peach? I’m supposed to get some but have no idea what to look for.”

Now I realize people strike up random conversations at the store for all sorts of reasons, but I could tell he was out of his element. I got the impression he was under orders to bring home a certain list of items and was truly lacking the knowledge to do it correctly, and I was particularly impressed that he took the initiative to ask for help. I’m no chef by any means, but I was happy to offer my own experience of selecting them by feel and smell and letting any peach that is a little hard ripen for a few days before eating. With a few nice ones in-hand, we went our separate ways to enjoy a future sunny afternoon with a really tasty fruit.

Thinking back on that experience, I’ve always been keenly aware of how important it is to not only suggest an idea but to also offer enough information to make it actionable. So many financial voices lecture about investing concepts only to stop at the theoretical stage without bridging the gap to how normal people can act on those ideas. Sometimes it’s out of self-interest when their end goal is to drive readers to hire them for their financial services. Occasionally you run across a noble but detached research type who revels in unraveling the data but never actually makes the connection to anything that applies in the real world. And of course some people just like to talk without always fully understanding what they’re talking about. But regardless of the motivation, truly helping people is about so much more than simply convincing them that they should buy peaches without explaining how to actually do it. You have to take that next step.

In that same practical spirit, I’m really excited to share a new tool that I’ve been working on for a long time. If you’ve ever explored Portfolio Charts and found an asset allocation that looks perfect for you but struggled to figure out how to act on that knowledge, I now have just the thing to help. I call it the Fund Finder.

At its core, the Fund Finder is a database that helps match Portfolio Charts investing assets to real-world ETFs. I actually had a page dedicated to that list a while back which was quite useful, but when I expanded beyond US assets to study portfolios in 12 different countries I quickly learned just how woefully inadequate it was at keeping up with investment options all around the world. Now that I’m a few years wiser and have a bunch of research hours under my belt, however, I’m finally ready to pick up right where I left off — with an interesting new twist.

Here’s an example of what the Fund Finder interface looks like:

As you can see, the chart isolates each asset in your allocation and suggests appropriate ETFs for each choice. For example, in this example ITOT (an iShares ETF) is the suggested fund for the US total stock market while the SCHR (a Schwab ETF) is the suggested fund for intermediate US bonds. You can also see the expense ratios, which are 0.03% and 0.05% respectively. That’s simple enough, so let’s crank it up a notch and build a Merriman Ultimate portfolio in Germany.

The reason I call it the Fund Finder is that the new calculator is much more than simply a list of ETFs. It’s an intelligent tool that helps you sift through all of the available options to quickly identify the collection of index funds that most affordably meets your personal portfolio needs. In this example, it scans all of the biggest ETF providers in Europe, screens for funds that track the desired assets, sorts the funds by expense ratio, and recommends the least expensive option. And if the suggested fund doesn’t work for you, each black box contains a dropdown list where you can select any of the top-5 cheapest ETFs in the database for those assets. Build your desired asset allocation, and the Fund Finder will even calculate the total weighted expense ratio for your entire portfolio as a whole.

Pretty cool, right?

For another example, let’s look for ETFs to track the Global Market Portfolio in Canada.

Here we can see two additional features:

  • Notice how it recommends a combination of two ETFs to track the total stock market of the developed world? Sometimes there’s not a single fund that tracks the desired asset, but the right mix of two different funds can get you really close. The recommended percentages are based on my own calculations to best match the historical record without going overboard. And the expense ratio automatically adjusts to the weighted ER of the two funds as described in the notes.
  • Look at how several of the funds are from foreign exchanges. While the tool always prioritizes local options based on your home country setting, sometimes a good ETF isn’t available in your market and foreign offerings are your best bet. In this case, it recommends US funds for stocks (pretty common in Canada from what I gather) and a European fund for bonds. And if you don’t have access to European exchanges in your brokerage, no worries! Click the dropdown to see if any other recommendations work for you.

Now as you can imagine, unraveling the details of every ETF in every market becomes overwhelmingly complicated really quickly. So to reduce it to something manageable, I made a few simplifications.

First, the fund list is designed to cover all of the largest ETF providers but is certainly not comprehensive of every good ETF out there. I’ll add more over time, but you have to start somewhere. Second, while I only make one recommendation per issuer, there may be perfectly good alternatives from the same company (especially in Europe where they list separate accumulating and distributing versions of the same fund). And third, I lumped all European funds together without regard for the specific exchange coverage. That should not be a problem in most cases where your brokerage has access to at least one exchange with the ETF listing, but it could mean that a few “local” recommendations may be harder for you to find than the tool may imply. I won’t bore you with every nuance, but for more info be sure to read the details on the Fund Finder page. Long story short, while I feel really good about the list it should just be the start of your research, not the final word.

Another thing to keep in mind is that it’s entirely possible that there are investing considerations in certain countries outside of the US that I just don’t personally understand. But I’m also not the type to wait for perfection before putting myself out there to help as many people as I can. So here’s the deal — I love feedback. I’ve done my best to educate myself on things like ISIN codes and international exchanges, but if there’s something that you see that either doesn’t seem right or would be way more useful with more information, please don’t hesitate to contact me. It’s how I learn, and I’m totally open to future improvements based on your feedback. Circling back to the opening story, while I’m happy to help you select the right peach for your portfolio, I’m also the guy asking for help about investing outside of the United States. Let’s work together to accomplish both of our goals.

Speaking of goals, the Fund Finder is an important piece of my own vision to provide people around the world with actionable information to help them make educated investing choices. In fact, it’s enough of a core concept that I’ve put it right at the top of the list of charts for each Portfolio in the spot it deserves. In addition, I’ve re-tooled the individual charts on the site to include not only a Bookmark option but also a new one called “Find ETFs”.

Clicking that link will take you to a bookmarked version of the Fund Finder that includes your selected portfolio. So no matter what tool you’re playing with, if you find an asset allocation you like then a list of appropriate ETFs is always just one click away.

Perhaps you’re an investing newcomer searching for your first index fund. Or maybe you’re a seasoned expert who is interested in reducing the ongoing expenses of your portfolio. Either way, the Fund Finder has something for everyone. So check it out, spread the word, and let me know what you think. It has been a long time coming, and I’m excited to see where it leads.

When is the last time you evaluated the fund options for your portfolio? Trust me — I know it’s a lot of work! But the Fund Finder should make it much easier, and my hope is that it will take the mystery out of buying a portfolio and open your eyes to just how simple it can be to put your investments to productive use.

Did the Fund Finder help you save a lot of money in unnecessary expenses?