“Building a Diversified Portfolio Without ETFs: The Case for Selective Investing
investors rely on ETFs for instant diversification, but that convenience comes at a cost — exposure to hundreds of companies you may not know or trust. A more intentional approach is to build a diversified portfolio by directly selecting individual stocks that meet specific criteria: profitability, stability, and sector relevance.
By spreading your investments across industries with strong fundamentals — for example, technology, finance, healthcare, and energy — you can achieve diversification while maintaining full control over what you own. This strategy requires more research but rewards you with transparency and conviction in each holding.
Navigating International ETFs: Costs and Passive Investing
Many investors rely on ETFs for instant diversification, but that convenience comes at a cost — exposure to hundreds of companies you may not know or trust. ETFs generally follow a passive management strategy, meaning they replicate an index rather than trying to beat it. This approach keeps fees very low, allows broad market exposure, and requires minimal active management.
Popular U.S. ETFs (Passive)
| ETF | Index | Annual Fee | Notes |
|---|---|---|---|
| VOO | S&P 500 | 0.03% | Vanguard, highly liquid |
| IVV | S&P 500 | 0.04% | BlackRock, popular choice |
| SPY | S&P 500 | 0.09% | Oldest S&P 500 ETF, very liquid |
| VTI | Total U.S. Stock Market | 0.03% | Covers entire U.S. market |
| SCHB | Total U.S. Stock Market | 0.03% | Schwab, low-cost option |
| QQQ | Nasdaq 100 | 0.20% | Technology-heavy, passive |
| SCHD | Dividend-focused | 0.06% | Focus on high-quality dividend stocks |
| VIG | Dividend growth | 0.06% | Dividend growth ETF |
Popular International ETFs (Passive)
| ETF | Index / Objective | Annual Fee | Notes |
|---|---|---|---|
| VXUS | Global ex-U.S. stocks | 0.08% | Vanguard, broad global coverage |
| VWO | Emerging markets | 0.08% | Vanguard, high-growth potential |
| EFA | Developed markets ex-U.S. | 0.32% | Focus on Europe, Australasia, Far East |
| IEFA | MSCI EAFE | 0.07% | Low-cost developed markets ETF |
Why Passive Management Matters
- Low cost: Less fees mean more money stays invested, increasing compounding effects.
- Transparency: ETFs replicate known indices, so you know exactly what you own.
- Automatic diversification: Even a single ETF can hold hundreds of stocks, reducing company-specific risk.
- Liquidity: Popular passive ETFs have high daily volume, making buying and selling easy.
A more intentional approach is to build a diversified portfolio by directly selecting individual stocks that meet specific criteria: profitability, stability, and sector relevance. By spreading your investments across industries with strong fundamentals — for example, technology, finance, healthcare, and energy — you achieve diversification while maintaining full control over what you own.
Ultimately, the choice between ETFs and direct stock selection depends on your priorities: convenience, low cost, and passive exposure versus control, selective diversification, and deeper understanding of each holding.
International ETFs vs Individual Stocks: Passive Investing and Slope
Many investors use ETFs like VOO for broad market exposure and simplicity, benefiting from low fees (0.03–0.5% annually) and passive management. These ETFs replicate indexes rather than trying to beat them, offering instant diversification and liquidity.
However, even within a simplified strategy, it’s possible to identify individual stocks with stronger growth trends (slope) than the broader index. Examples include:
Stocks with High Slope
| Stock | Slope |
|---|---|
| ORCL | 0.225572 |
| AMD | 0.119811 |
| NVDA | 0.101878 |
| UBER | 0.083292 |
| TSLA | 0.077720 |
| MS | 0.071930 |
| XOM | 0.071097 |
| WFC | 0.070844 |
| GS | 0.066138 |
| CVX | 0.065665 |
| SIEGY | 0.062145 |
| SONY | 0.057668 |
| C | 0.054464 |
By selectively investing in individual stocks across sectors like technology, finance, energy, and healthcare, investors can achieve diversification while maintaining control and potentially capturing stronger growth trends.
Ultimately, the choice between passive ETFs and individual stock selection depends on your priorities: simplicity, low cost, and market exposure versus targeted selection, conviction, and slope-driven opportunities.