10 ETFs to Build a Diversified Portfolio

Large-cap U.S. stocks, small-cap stocks, international equities, commodities, bonds and real estate have all delivered different combinations of risk and return over the past year.

So far, U.S. large-cap stocks and international markets have generated strong returns with moderate risk. Small-cap stocks produced more volatility but less upside, as did real estate. Bonds showed low volatility and low returns, while commodities delivered double-digit gains with higher price swings.

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These differences stem from underlying drivers like interest rates, inflation, corporate earnings and global demand. More importantly, different asset classes respond to these forces in different ways.

In practice, that means it’s unlikely they all move in the same direction or with the same intensity in any given year. This low correlation is what makes diversification effective. It helps smooth out performance over time by offsetting losses in one part of a portfolio with gains or stability in another.

“Different asset classes provide vastly different return profiles during distinct macroeconomic and market environments,” explains Michelle Cluver, head of ETF model portfolios at Global X ETFs. “For example, equities and fixed income traditionally have a low correlation, so fixed income can provide a cushion during periods of economic stress where equities are likely to face headwinds.”

To build a diversified portfolio, investors can now choose from thousands of exchange-traded funds (ETFs) that provide exposure to all major asset classes. ETF lineups also include newer segments such as crypto assets and alternative strategies using derivatives.

Here are 10 of the best ETFs for diversifying an investment portfolio:

ETF	Expense ratio
iShares Core 80/20 Aggressive Allocation ETF (ticker: AOA)	0.15%
Vanguard Total Treasury ETF (VTG)	0.03%
iShares Aaa – A Rated Corporate Bond ETF (QLTA)	0.15%
Texas Capital Government Money Market ETF (MMKT)	0.20%
Global X MLP ETF (MLPA)	0.45%
abrdn Physical Precious Metals Basket Shares ETF (GLTR)	0.60%
VanEck BDC Income ETF (BIZD)	12.86%*
Schwab U.S. REIT ETF (SCHH)	0.07%
Simplify Managed Futures Strategy ETF (CTA)	0.76%
SPDR Bridgewater All Weather ETF (ALLW)	0.85%

*The fund’s expense ratio is reported as 12.86%, but the large majority of those costs are acquired fund fees and expenses (AFFEs) that are required to be listed as expenses but are not paid from the fund’s net assets.

iShares Core 80/20 Aggressive Allocation ETF (AOA)

“We generally stick to U.S. equity, international equity and fixed income,” says Adam Grossman, global equity chief investment officer at RiverFront Investment Group. Some of the most diversified, all-in-one ETFs on the market like AOA follow this convention with their asset allocation.

AOA is a fund of funds. It holds seven other iShares ETFs spanning U.S. stocks, international stocks and bonds. For stocks, small- and mid-caps are added for additional coverage. For bonds, a global focus is present. The ETF is rebalanced periodically by iShares and comes at a competitive 0.15% expense ratio.

Vanguard Total Treasury ETF (VTG)

“Bond investors can tailor their allocation based on their tolerances for interest rate risk and credit quality,” says Bryce A. Doty, senior vice president and senior portfolio manager at Sit Investment Associates. The safest bonds on the market are Treasurys, which can be accessed via VTG.

VTG tracks the Bloomberg U.S. Treasury Total Return Unhedged USD Index, which spans short-, intermediate- and long-term Treasury bonds in one package. The ETF currently pays a 4.2% 30-day SEC yield with monthly distributions and charges a very low 0.03% expense ratio.

iShares Aaa – A Rated Corporate Bond ETF (QLTA)

“Combining stocks and higher-quality investment-grade bonds is much more likely to achieve a higher level of diversification,” says David James, managing director at Coastal Bridge Advisors. “When stocks go down in value, high-quality bonds often produce positive returns.”

In lieu of Treasurys, investors can find higher quality in fixed-income assets via QLTA. This bond ETF holds a portfolio of investment-grade corporate bonds, but with a minimum credit quality of A to Aaa. The lack of BBB bonds makes QLTA slightly safer in terms of credit risk compared to aggregate bond ETFs.

Texas Capital Government Money Market ETF (MMKT)

“We caution clients to be careful using long-duration Treasury ETFs to protect against periods of negative stock market returns given their heightened sensitivity to inflation pressures,” Doty says. “As we saw in 2022, the influence of inflation on long-duration bonds trumped all else.”

A better solution for wealth preservation while earning modest income is MMKT. While its net asset value (NAV) is not fixed at $1 like money market mutual funds, the ETF still has very low volatility. Investors can currently earn a 4.3% seven-day SEC yield after accounting for a 0.2% expense ratio.

[Read: 10 Stocks That Hedge Funds and ETFs are Buying Right Now]

Global X MLP ETF (MLPA)

“We continue to believe that energy companies are an underappreciated gem in the value space,” Grossman says. “Low oil prices have pushed their break-even lower than 10 years ago, and the capital discipline acquired from going through tough markets has focused them on cash flow generation.”

Master limited partnerships (MLPs) in midstream energy can deliver a combination of inflation protection and above-average yield. Accessing MLPs via an ETF like MLPA provides built-in diversification while negating the need to file a Schedule K-1 tax form. MLPA pays a 6.3% 30-day SEC yield.

abrdn Physical Precious Metals Basket Shares ETF (GLTR)

Precious metals can add diversification by providing exposure to both safe-haven assets like gold and industrial-linked metals like silver, platinum and palladium. These metals may help offset risks tied to currency debasement, inflation, geopolitical instability and equity market volatility.

GLTR offers the broadest approach, holding all four in one fund without requiring investors to buy physical bullion. It manages around $1.5 billion in assets and charges a 0.6% expense ratio. Aberdeen also offers more specialized precious metals ETFs for investors looking to unbundle their exposure.

VanEck BDC Income ETF (BIZD)

“As more investors look to private credit for its diversification and income potential, access remains a key hurdle due to high minimums, limited liquidity and complex structures,” says Coulter Regal, product manager at VanEck. However, business development companies (BDCs) offer a listed proxy.

The BDC space is highly complex and specialized, so accessing it via an ETF like BIZD can be a friendlier option for beginners. “With roughly $1.7 billion in assets and a decade-long track record, BIZD is a well-established option,” Coulter says. The ETF pays a high 8.8% 30-day SEC yield.

Schwab U.S. REIT ETF (SCHH)

Compared to sectors like technology, real estate is underrepresented in the S&P 500 despite being a major part of the global economy. You can shore up exposure through real estate investment trusts, or REITs, which are legally required to distribute at least 90% of taxable income to shareholders.

As with BDCs, REITs vary widely in strategy and structure, so a basket approach through an ETF like SCHH is a practical option. This ETF passively tracks the Dow Jones Equity All REIT Capped Index, charges a low 0.07% expense ratio and currently pays an above-average 3.6% 30-day SEC yield.

Simplify Managed Futures Strategy ETF (CTA)

Thanks to alternative ETFs, retail investors can emulate the strategies of institutional investors but with lower fees. Examples like CTA use quantitative models to trade long and short positions across various futures markets, with the goal of delivering positive returns and low correlations.

“CTA’s daily positioning is driven by an institutional, hedge fund algorithm developed and managed by Altis Partners, who has deep experience in managed futures and systematic trend-following strategies,” says Paisley Nardini, managing director and head of multi-asset solutions at Simplify.

SPDR Bridgewater All Weather ETF (ALLW)

AOA is a fairly simple asset allocation ETF that only owns stocks and bonds, but newer competitors like ALLW are more sophisticated. This ETF uses input from Bridgewater Associates’ and Ray Dalio’s famous “All Weather” hedge fund strategy in an attempt to provide steady returns across all economic cycles.

ALLW’s secret sauce is a “risk parity” approach that blends nominal bonds, stocks, inflation-linked bonds and commodities based on their contribution to portfolio volatility. It also strategically uses leverage via derivatives to enhance return potential. However, this comes at a fairly high 0.85% expense ratio.

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10 ETFs to Build a Diversified Portfolio originally appeared on usnews.com

Update 08/05/25: This story was published at an earlier date and has been updated with new information.