How to build an ASX ETF portfolio to match your risk profile

After a particularly volatile start to 2025, investors may find themselves reevaluating their portfolios' risk profile.

For those who invest in ASX shares, this may involve reflecting on the mix of large-capitalisation stocks compared to small-capitalisation stocks, or perhaps the number of companies in their portfolio that have a reliable track record of consistent dividends, revenue growth, or profit growth. It could even mean eliminating more speculative ASX shares that have yet to make a profit. 

While exchange-traded fund (ETF) investors don't have control over the individual stocks in the ASX ETFs they purchase, they can invest based on their overall style or geography. Therefore, the process is not all that different to the one that stock pickers go through. ASX ETF investors can choose one or more ETFs to match their risk profile and preferences. Here are some examples.

One stop shop ETFs

For stock pickers, many experts recommended holding between 20 and 25 stocks to optimise diversification. However, with many ETFs holding hundreds (or sometimes even thousands!) of companies, this is not always necessary. What matters more is the correlation between those holdings. While it may not be appropriate to own just one thematic ASX ETF (and nothing else), index funds are a different story. 

It could be a relatively conservative decision to make the Vanguard Australian Shares Index ETF (ASX: VAS), which contains 300 Australian stocks, an investors' entire portfolio. 

However, if an investor wanted to decrease the risk profile of their portfolio, they might consider an ETF that contains a mix of equities and fixed income. For example, the Vanguard Diversified Conservative Index ETF (ASX: CDCO), which has 70% exposure to fixed income and 30% exposure to equities, could be a good choice. Fixed income investments typically attract conservative investors for their predictability and low volatility.

Combining multiple ASX ETFs

ASX ETF investors can also further tailor their risk profile by selective multiple ETFs and the respective weightings.  

For example, to reduce risk by maximising diversification across asset classes, investors could add a real-estate focused ETF such as the Vanguard Australian Property Securities Index ETF (ASX: VAP). 

Another option is to diversify geographically. Investors may wish to allocate a portion of their investment to US-focused ETFs such as the Vanguard US Total Market Shares Index AUD ETF (ASX: VTS), which invests in more than 3,000 US stocks. Those with a less favourable view on US stocks might prefer the Vanguard MSCI Index International Shares ETF (ASX: VGS), which has 72% of the ETF invested in US stocks and the remainder across countries such as the UK, Canada, France, and Switzerland. 

Alternatively, a portion could be invested in ETFs focused on Asian markets such as the Betashares Asia Technology Tigers ETF (ASX: ASIA). Recently, global investors have taken a particular interest in Indian equity markets. This could make the Betashares India Quality ETF (ASX: IIND) a more appealing option for geographical diversification. According to Bloomberg, it is being viewed as a relative safe haven. While the US-China trade war appears to have somewhat de-escalated, there's no guarantee what will happen when the 90 day pause on reciprocal tariffs runs its course. 

The post How to build an ASX ETF portfolio to match your risk profile appeared first on The Motley Fool Australia.

Motley Fool contributor Laura Stewart has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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