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I started building my retirement portfolio with an Euro Stoxx 50 ETF. To minimize the risk a bit I would like to buy another ETF (and have both 50-50 in my portfolio). Is buying a blue chip stocks ETF in another region (Asia) enough? Or could I stay in Europe but buy an ETF with EU country bonds?

How different has an ETF to be from the Stoxx 50 to be a viable candidate? There are key figures like Sharpe ration, Morningstar Rating or volatility. Doe they have to be different that the other ETF?

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While you would reduce risk by diversifying into other stock ETFs across the world, Developed Market returns (and Emerging Markets to a lesser extent) are generally highly correlated with another (correlation of ~0.85-0.90). This implies that they all go up in bull-markets and go down together in bear markets.

You are better off diversifying into other asset-classes given your risk tolerance (such as government bonds, as you have mentioned). Alternatively, you can target a portfolio owning all of the assets in the universe (assuming you're trading in Frankfurt, a combination of something similar to H4ZJ and XBAG, but with higher volumes and/or lower fees)!

A good starting resource would be the Bogleheads Wiki:

https://www.bogleheads.org/wiki/Asset_allocation

  • What correlation value am I looking for? Can I calculate the correlation of two ETFs with the public data? – user52195 Jan 12 '17 at 8:45
  • Ideally you would like to find high expected return, perfectly negatively correlated assets (so correlation = -1) so your combined portfolio performs as follows: image.slidesharecdn.com/… Few assets exhibit a negative correlation with a broad stock index, but some come close to a correlation of 0 (meaning returns are long-term independent) or even slightly negative. If you want to play around with some historical asset data in Excel, have a look at bogleheads.org/wiki/Simba%27s_backtesting_spreadsheet – palffy Jan 12 '17 at 16:37
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You could go with either of:

  1. MSCI World (Developed Markets),
  2. MSCI World ACWI (Developed + Emergin Markets) or even
  3. MSCI World Investible Markets (All of the above plus small caps IIRC)

Choosing this you'd pretty much have minimized your risk by using the whole world asa market.

  • What key figures of those ETFs make them viable? – user52195 Jan 10 '17 at 21:01
  • Those are indexes not ETFs. You should be able to find them easily via Googling. A ginourmous amount of products exist on those indexes. I can't tell you about your acceptable risk thus cannot tell you why those would be viable. For starters I don't know what makes the Euro Stoxx 50 index viable for you, nor which of the concrete ETFs you chose to invest in – serverhorror Jan 11 '17 at 13:31
  • I choose European blue chips just for the good feeling. – user52195 Jan 11 '17 at 14:39
  • If you want to lower risk by diversificaiton I can recommend MSCI World based products. They are a representation of the worldwide market. Also you should really read a little bit about each of the indexes and actual ETFs you invest to. At least the ETF Fact Sheet and KIID. – serverhorror Jan 11 '17 at 17:11

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