How to select the Vanguard ETFs

I showed a list of 31 Vanguard ETFs (exchange traded funds) to an expert and asked, "Which funds do you recommend?" Here is his reply.

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Hi --

The textbook answer on how to invest is to invest according to your risk preference. But no one really knows their risk preference -- so you can follow a rule of thumb, like to make the per cent of non-risky assets in your portfolio equal to your age.

Then a person at age 60 could put, say, 20 per cent into a stock fund, like the All-World ex-US index and 20 per cent in the Total Stock Market index (which is US stocks) -- and 60 per cent in the short-term bond fund.

On the other hand, if you don't want to take the robot approach and you want to have some fun with it, you can pick and choose what to buy -- (and do market timing).

If I were to market time (even though we know it can't be done), I would probably put 100 per cent in a bond fund and wait for the market to come down.

Suppose I am wrong and the market keeps marching higher at its normal pace of about 12 per cent per year (including dividends).

Then the short-term bond fund has returned about 5 per cent per year over the past 10 years, the intermediate bond fund about 6.5 per cent per year and the long-term bond fund about 8 per cent per year -- (as reflected in the average yield curve during that period).

So, even in the short-term bond fund, you would miss out on only 7 per cent return (12 - 5). If the market corrects, however, the loss in stocks would probably be more.

So, that is my advice.