How to build an ETF portfolio during a market pullback

As the saying goes, "The best time to take action was yesterday." But when it comes to investing, a market correction can offer you the opportunity to buy good assets at bargain prices. With prices down, many investors are asking: Is this the right time to start?

We've received numerous reader requests for ETF recommendations to take advantage of the current market dip. While market timing is notoriously difficult, history shows that staying invested over the long term is the most effective strategy.

Chris Brycki, Founder of Stockspot, explains:

“Now is always a good time to get started in markets, especially if you’re investing for the long term. Trying to time the market perfectly is nearly impossible, and history shows that staying invested consistently is the best way to grow wealth over time.”

For those looking to build a strong, diversified portfolio from scratch, ETFs offer a simple, cost-effective way to gain exposure to a broad range of stocks and asset classes. Let’s explore five ETFs that can serve as a solid foundation for long-term investing.

What to look for in an ETF

Before diving into specific ETFs, it’s important to understand what makes a good choice of fund. According to Brycki, the key factors to consider are:

• Costs – Fees play a major role in determining long-term returns. Keeping costs low means you keep more of your money in your pocket.
• Diversification – One ETF may not necessarily provide the precise diversification you're looking for. Multiple funds can help you spread risk across multiple companies, sectors, geographies and asset classes.
• Liquidity and trading costs – Highly liquid ETFs with strong trading volumes tend to have tighter bid-ask spreads, meaning you should be able to buy at or close to market value.
• Tracking accuracy – Not all ETFs track their benchmark equally well. A lower tracking error ensures closer replication of index performance.
• Tax efficiency – ETFs with lower turnover can be more tax-effective by minimising capital gains distributions.

5 ETFs to kickstart your portfolio

Let’s dive into the five ETFs Brycki likes. You can click on the fund cards to explore key details, including long-term performance and fees.

1. iShares Global 100 ETF (ASX: IOO) – Exposure to the world’s biggest companies

IOO provides access to 100 of the world’s largest multinational companies, including Apple, Microsoft, and Nestlé. These firms dominate global industries and have strong earnings resilience, making them ideal for long-term investors.

“IOO is a great core ETF for international exposure. These are businesses that dominate their industries and continue to grow over decades," Brycki says.

We know what savvy, fee-conscious investors will be asking: Why choose IOO over the cheaper Vanguard MSCI Index International Shares ETF (ASX: VGS)? Brycki emphasises that fees shouldn’t be the sole deciding factor, and he explains his reasoning later in this wire.

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iShares Global 100 ETF (IOO)

Global Shares

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2. Vanguard Australian Shares ETF (ASX: VAS) - Domestic exposure and franked dividends

No Australian portfolio is complete without exposure to the domestic share market, and in this regard, VAS tracks Australia’s top 300 companies, providing broad exposure to the domestic economy, including major banks, miners, and supermarkets. The ETF offers high income relative to international markets and the potential for capital growth.

“Australian shares also provide the added benefit of franked dividends, making them tax-efficient compared to many global markets," he says.

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Vanguard Australian Shares Index ETF (VAS)

Australian Shares

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3. iShares Emerging Markets ETF (ASX: IEM) or Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE) – High-growth economies

Emerging markets, such as China, India, and Brazil, offer significant long-term growth potential. ETFs like IEM and VGE provide diversified exposure to regions that are expected to grow quicker than developed nations due to factors including more favourable demographics and a booming middle class.

“Emerging markets can be more volatile, but they offer strong long-term growth potential and help diversify away from reliance on developed markets,” says Brycki.

He adds that emerging markets enhance portfolio diversification due to their lower correlation with developed market stocks. This is crucial because if, for example, the U.S. market declines (or rises), emerging market equities won’t necessarily follow the same trajectory, helping to reduce overall portfolio risk.

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iShares MSCI Emerging Markets ETF (IEM)

Global Shares

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Vanguard FTSE Emerging Markets Shares ETF (VGE)

Global Shares

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4. iShares Core Composite Bond ETF (ASX: IAF) – Stability and risk reduction

Bonds help smooth portfolio returns, especially during market downturns. IAF provides exposure to Australian government and investment-grade corporate bonds (bonds issued by companies), offering a reliable income stream and reducing volatility.

A common question Brycki encounters, particularly from younger investors, is what the point of holding bonds is if you're investing for 20-plus years. 

Markets don’t move in a straight line. During the COVID-19 crash in March 2020, Australian shares fell 36% and took 44 weeks to recover. A diversified portfolio that included bonds withstood the shock much better.

“Our highest-risk portfolio, which includes government bonds, fell by less than half that amount and recovered 10 weeks faster," he says.

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iShares Core Composite Bond ETF (IAF)

Australian Fixed Income

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5. Global X Physical Gold (ASX:GOLD) – A hedge against uncertainty and high government debt

Gold has historically been a safe-haven asset during periods of economic instability and inflation. GOLD allows investors to hold physical gold exposure without needing to store bullion.

While gold performed well in inflationary periods (e.g., rising 400% in the 1970s while U.S. stocks moved sideways), it also protected wealth during deflationary environments like Japan’s post-1990 stagnation.

“Gold helps smooth returns during financial crises. In March 2020, when Australian shares fell over 35%, gold rose, helping our portfolios take 50% to 70% less risk compared to the share market," Brycki says.

When government debt rises to extreme levels - like the U.S. national debt surpassing $36 trillion - investors often worry about the long-term value of money. In times of economic uncertainty, they turn to gold as a safe-haven asset because it has historically maintained its value, unlike fiat currencies, which can be affected by inflation or policy decisions.

"Historically, gold has also provided critical diversification during times of high government debt and monetary debasement, two factors that remain highly relevant today. Central banks have been accumulating gold at record levels in response to economic uncertainty, reinforcing its role as a strategic asset," he says.

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Global X Physical Gold (GOLD)

Alternative Assets

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How to decide on the right asset allocation mix?

Many investors spend time trying to pick the perfect stocks or bonds, but research shows that your overall mix of investments - how much you put in stocks, bonds, and other assets - matters far more.

A famous study by Brinson, Hood, and Beebower analysed large pension funds and found that over 90% of a portfolio’s ups and downs were driven by asset allocation - not picking individual investments.

Here's how Brycki suggests asset allocation can be put into practice using ETFs for beginner investors.

Step 1: Understand your risk capacity

Your risk tolerance depends on:

• Time horizon – Longer investment periods allow for higher risk.
• Income stability – If you need income soon, hold more defensive assets.
• Emotional resilience – If market drops worry you, include more bonds and gold.

Step 2: Diversify across asset classes and regions

A strong portfolio includes:

• Global shares – Exposure to world-leading companies.
• Australian shares – Franked dividends & local economy exposure.
• Emerging markets – Long-term growth from developing economies.
• Bonds – Stability and risk reduction.
• Gold – A hedge against inflation and financial uncertainty.

"The exact mix depends on your goals. Higher-growth investors typically hold more shares, while those looking for stability include more bonds and gold," Brycki says.

As an example, a typical "growth" strategy offered by a super fund has approximately 90% in equities and the balance in bonds, gold and other assets. Meanwhile, a "balanced" fund could have 60-70% invested in shares.

Step 3: Adjust your portfolio over time

Your risk profile isn’t static. Younger investors can prioritize growth, while those nearing retirement should shift towards defensive assets.

"As you get closer to needing your money (e.g., for retirement or a big purchase like a house), your portfolio should gradually shift towards more defensive assets like bonds and gold," Brycki says.

Common ETF investing mistakes (and how to avoid them)

Brycki has observed that first-time ETF investors often make common mistakes that can hurt their long-term returns. The good news? These pitfalls are easy to avoid with the right mindset and approach.

Here are some of the biggest mistakes—and Brycki’s advice on how to sidestep them:

• Chasing past performance – "Markets move in cycles, and what’s hot today might not be tomorrow."
• Ignoring diversification – "Owning multiple ETFs doesn’t automatically mean your portfolio is well-constructed. If you hold an Australian shares ETF, an Australian high-dividend ETF, and an Australian ethical ETF, you’re still mostly exposed to the same market."
• Skipping defensive assets – "Many new investors go all-in on shares, thinking bonds and gold are unnecessary for long-term growth. While shares have historically delivered higher returns, defensive assets help reduce risk."
• Overtrading – "Frequent buying and selling increases brokerage costs and can also trigger unnecessary tax events."
• Short-termism – "Holding investments for at least 12 months allows investors to benefit from capital gains tax discounts."

And finally, while ETFs are popular for their low costs, some investors become overly fixated on fees.

Reddit threads are enamoured with debates about whether an ETF with a 0.05% fee is better than one with a 0.07% fee. However, focusing purely on costs can lead to missing out on better-performing investments, which leads us to the debate over IOO vs VGS.

Example: IOO versus VGS

Investors, whether new to ETFs or experienced, often become fixated on minimising fees, meticulously comparing costs to shave fractions of a percent off their portfolio expenses.

After all, IOO charges 0.40%, while VGS comes in at just 0.18%. But this is where Brycki emphasises the importance of looking beyond fees and digging deeper into what each fund actually holds, even when they appear to offer exposure to the same asset class.

Despite its higher fee, IOO has outperformed other global share ETFs. Over the past three years, his clients earned 4.2% p.a. more by holding IOO instead of VGS.

"The cheapest option isn't always the smartest one," he says.

In this case, IOO focuses exclusively on 100 of the world’s most dominant and financially resilient companies, while VGS takes a much broader approach, holding over 1,300 stocks—including many that lack the same pricing power and competitive strength.

Essentially, with IOO, you're getting 100 of the best global companies, while VGS gives you the good, the bad, and the ugly.